In sheer economic terms, I tend to doubt that unless Congress puts together a bailout bill before Monday -- as seems to be the emerging conventional wisdom -- all hell will break loose in markets around the world. As Raghuram G. Rajan told FP earlier this week, the U.S. government's recent moves have actually given the economy some breathing room:
I think three actions by the regulators have bought us a little bit of time. First, guaranteeing the money-market funds. The second was taking some of the pressure off Goldman Sachs and Morgan Stanley by allowing them to become bank holding companies. And third, announcing the fact that the government was serious about fixing the system.
That said, Senate Majority Whip Dick Durban makes a good point here when he says, "If we start talking about another week or two, it will take another week or two." What's more, opportunistic members of Congress will only have more chances to lard up the legislation with irrelevant, possibly harmful additions. So, I can understand why President George W. Bush wants to see action sooner rather than later -- even if it isn't quite as urgent as he says it is.
I could, of course, be catastrophically wrong, and the markets could seize up Monday if Congress doesn't pass a bill.
Here's what to look for. Forget about stocks for the moment. Since the main problem that is keeping Ben Bernanke and Hank Paulson up nights is financial institutions' unwillingness to lend to one another, that's what we should really be paying attention to. The key indicators to watch in this regard are the so-called TED spread and, relatedly, LIBOR. Here's what the TED spread is doing these days:
As you might be able to infer, up is bad. If it spikes any further on Monday, we are all in big trouble.
We don't yet know what House Speaker Nancy Pelosi, Minority Leader John Boehner, and Treasury Secretary Hank Paulson decided during their meeting this afternoon. But if I had to guess, I would say that they were trying to come up with a compromise that gives everyone equal cover. This bailout bill is a political hot potato, and neither party wants to get burned.
Whether the bill passes or not, the U.S. economy is not about to roar back to life anytime soon. In fact, things may get worse before they get better. So, even if the legislation that ultimately passes is smart policy, whoever is seen as its "owner" in the public eye will be blamed as the economy continues to struggle. So the stakes are pretty high.
Which makes it all the more troubling that, in declaring his intention to come back to Washington and pitch in, John McCain may have just blown Pelosi and Boehner's negotiations to smithereens. What was already a politicized debate in Congress has just become fodder for the presidential campaigns, and it will be much harder to get a deal done. Discretion would have been the better part of valor here.
It was almost ominous. Writing in FP in 2000, Ben Bernanke imagined the next stock market crisis, and how true recession might be averted.
There's no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse."
So, how would Bernanke stack up to his own expectations? According to the now Fed chairman's article, central banks must keep banks intact, credit flowing, and interest rates low. In Congress yesterday, Bernanke said this:
Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth."
Great. He passes. But could that be part of the problem?
I used Bernanke's macroeconomics textbook in college, and learned that market ups and downs are natural. Did years of pushing those minor blips into the horizon -- one liquidity injection or interest rate decrease at a time -- cause today's massive build up of bad? The housing bubble, for example, might have been encouraged to shrink before it got too big. Instead, all those bad loans have built up into the torrent of junk in need of a bailout today.
Weigh in on your thoughts in comments. In the meantime, I'm still hoping that the man who taught me macro was right in 2000:
If Wall Street crashes, does Main Street follow? Not necessarily."
Tyler Cowen offers a handy simplification of the difference between the bailout plan put forward by Treasury Secretary Henry Paulson and the revised version proposed by Democratic Sen. Chris Dodd:
Think of a barrel of apples, some good, some less good. To oversimplify, the Paulson plan has the government buy some of the bad apples. The Dodd plan has the government buy a 20 percent share in the barrel. In both cases government buys something.
If you're a current or former employee of AIG or Lehman Brothers, there's a special discount for you in Chicago: half-price beer in which to drown your worries.
The Fifty/50 restaurant is giving a 50 percent discount on bar and restaurant tabs to customers who have proof they work, or once worked, for bailed-out AIG or bankrupt Lehman Brothers. The discount is more generous than the one offered to "poor" American tourists at the famous Harry's Bar in Venice, but it is limited to Sundays through Thursdays until October.
This statement, from Kentucky Republican Sen. Jim Bunning, is priceless:
Instead of celebrating the Fourth of July next year Americans will be celebrating Bastille Day; the free market for all intents and purposes is dead in America... The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been mislead throughout this economic crisis. The government on all fronts has failed the American people miserably."
Just released: Federal Reserve Chairman Ben Bernanke's testimony before the Senate Banking Committee:
Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy. In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.
Pretty mild stuff, given the stakes. I wonder what he told the congressmen in private last week that had them so terrified?
UPDATE: You can watch the hearing here at 9:30 a.m. ET.
... here's Paulson's testimony.
If you were investing in South Africa's promising economy, what is the last thing you'd like to see?
Well, there's no need for hypotheticals. You could have just watched the news last night.
The resignation of President Thabo Mbeki, who for all his flaws oversaw fantastic economic growth, has sent shivers up investors' spines. South Africa is one step closer to its next elected leader, leftist Jacob Zuma of dubious economic credentials, who is hugely favored to win polls in 2009. But even more alarming, the country's respected political system looks closer to operating on tit-for-tat political disputes than ever in its democratic history.
Zuma was once Mbeki's deputy prime minister, but since a falling out several years ago, he has pushed hard to make his own name. In December, Zuma ousted Mbeki as the party leader of the ruling party, the African National Congress (ANC). Just last week, Zuma and Mbeki sparred again -- this time over long-pending corruption charges against the former. A court dismissed the charges against Zuma, and the ANC accused President Mbeki of having pressured the courts to go after his rival. Mbeki denied the charges, but tendered his resignation after his party pushed him out.
Since Zuma -- not yet a minister or MP -- is currently ineligible, ANC political veteran Kgalema Motlanthe looks slated to take over until next year's elections. Investors are waiting to see if Motlanthe will keep Mbeki's ministers or stick in a few of his own. Zuma, when he comes, has promised to redo South Africa's growth, empowering the working classes. No one is yet certain what that will look like, but opposition politician Helen Zille tells BBC that it's code for "grab the spoils of state."
It would be a shame if a bitter political struggle sends South Africa back in time. As retired Archbishop Desmond Tutu eloquently put it, "The way of retribution leads to a banana republic."
To the Editor:
Dear Mr. Bernanke and Mr. Paulson:
My student loans are too big and it is hurting the economy. Can I have a bailout, please? I need $92,000.
St. Paul, Sept. 17, 2008
(Hat tip: Matt Yglesias)
... I should note that, while the above is obviously a bitter joke, here's the thing. Financial industry lobbyists are hitting the halls of the Capitol Building hard this week "to ensure as many institutions as possible benefit" from the administration's $700 billion bailout plan. Bloomberg reports that already, a language tweak in guidance from the Treasury Department to Congress suggests that "instruments such as car and student loans, credit-card debt and any other troubled asset" could be included, raising the total cost of the plan significantly. Maybe Kottke's little joke isn't so far-fetched after all.
Fallout from the financial crisis has now officially hit Main Street, London, where the latest casualty is none other than the family nanny.
The downturn comes at the end of the "golden era" of homecare. During the boom, nannies have been a staple of highly paid bankers' households. But as the market sours, nannies are the first luxury to go. Nanny pay rates are dropping, and jobs might soon be, too.
It was the last thing that British nannies needed. With the opening of trade that has come with European Union expansion over the last several years, less expensive Eastern European nannies are already starting to steal away jobs from Britain's renowned business.
Even Mary Poppins and her magic umbrella probably couldn't fix this mess.
What is happening now is what people have worried about for decades, that when the financial system blows up, the average American taxpayer has to foot the bill, socializing the losses, but privatizing the gains. Wall Street has discovered a great business where the upside is potentially unlimited, but the downside is ultimately put on the taxpayers' tab."
This really gets to the crux of modern finance. The argument may seem an unimpeachable critique of Wall Street's greed and selfishness, but it's easy to unfairly characterize Wall Street's practices. Yes, securitization and insurance, two areas in which the modern financial industry really excels, are all about privatizing gains and socializing losses.
But then again, with a fire insurance policy, you can enjoy your private abode with peace of mind. If your house burns down, the cost of your claim gets socialized across the other customers paying premiums to your insurance company. It is a legitimate method for risk dispersal and enables us to enjoy a higher standard of living.
In fact, the real problem is that AIG just didn't socialize its potential losses enough. It was unwise to hold such large amounts of credit default swaps (insurance they issued on bonds), ultimately leading to its troubles. Those could have been sold to various investors, thus socializing any potential losses!
So it's important to make the point: What is reprehensible here is that losses have now been socialized to taxpayers. This is because outsized risks were taken due to the availability of easy credit and the upwards march of housing prices, exacerbated by poor risk management and defective bond ratings schemes. In the future, many new regulations will be required.
"Privatizing gains, socializing losses," though? There shouldn't be an inherent stigma to this concept. We live with it every day.
When Wall Street sneezes, does the world catch a cold? Based on a grim tour of financial markets around the globe, I'd say the answer is yes:
In Russia, trading was shut down for a second day in a row to stop a tumble in markets, even after the central bank offered the three largest banks $44 billion in loans. The fall dates back to the war in Georgia, during which $35 billion of foreign investment fled the markets, and even before then. In the Middle East, stocks fell also -- part of an ongoing downward trend in that region this year.
Shares of Britain's largest mortgage lender, HBOS Plc, fell 52 percent, traders fearing that the lender might not have access to cash. Lloyds TBS bank might buy the troubled firm. European stocks fell, while three-month Libor (a common reference rate for the cost of borrowing in dollars) rose to its highest since 1999.
Japan's central bank injected over $29 billion into the financial system, while Australia's central bank added another $3.5 billion in the name of reassuring investors. Korea and Singapore promised they were ready to step in and do the same if necessary. Despite the bailout of AIG, customers lined up across Asia to cancel their policies with the insurance company. An index of Chinese mainland stocks in Hong Kong took a 4.2 percent dive.
The Brazilian stock market hit its lowest mark since 2007 thanks to fears that lending would become more costly in the coming weeks. Markets in Chile, Argentina, and Colombia were also down. Home construction companies in Mexico also looked shaky. There are fears that Venezuela might default on its exchange rate.
So, to the anxious folks on Wall Street, take heart: You're not alone.
Here's Alaska Gov. Sarah Palin answering a question at a diner in Cleveland, Ohio:
Dissapointed [sic] that taxpayers are called upon to bailout another one... Certainly AIG though with the construction bonds that they're holding and with the insurance that they are holding very, very impactful to Americans so you know the shot that has been called by the Feds its understandable but very, very disappointing that taxpayers are called upon for another one."
Scott Conroy of CBS says, "This morning’s stop marked the first time she answered a question from the press on the fly, prompting concerned looks from staffers." Make of that what you will.
Why are oil prices bouncing back? A hurricane. Kind of.
Beginning this weekend, rebels in Nigeria's oil-rich Niger Delta region launched "Hurricane Barbarossa," an operation they claim has left 29 Nigerian soldiers dead. Violence has spread to 10 villages in and around the city of Port Harcourt. Reuters says there have been 100 casualties in all. Rebels claim to have taken 27 oil workers hostages. Oil pipelines, flow stations, and facilities have been destroyed. The country's oil output is down by 115,000 barrels per day.
The rebels' message to the world? Ships should not dock, foreign workers should be evacuated, and journalists should come see the destruction. As their spokesman e-mailed journalists on September 15,
If the Nigerian military is confident of its capabilities, let them be bold to take journalists and photographers to Orubiri to assess by themselves the aftermath of Barbarossa. We will henceforth begin documenting our raids by providing digital cameras and camcorders for each fighting unit."
So what the hurricane is going on over there??
Since coming to power 16 months ago, Nigerian President Omaru Yar'Adua has promised peace talks to end the years of feuding. The rebels claim that their region has been neglected -- underdeveloped and decimated by environmental destruction. So, Yar'Adua promised a Niger Delta summit, a high-power moderator, and a lot more economic development. But fickle fights, waffling, and a lot of animosity from all sides have prevented plans from going forward. The government is charging one of the legendary founders of the rebel movement with treason. And it doesn't help that the Nigerian president is battling off rumors that he is sick and resigning.
With talks a nonstarter, the Nigerian government -- desperate to keep oil revenues flowing -- saw just one option: the military. State forces attacked rebel territory on Sept. 13, and the rebels quickly mobilized for what has become the heaviest fighting in two years.
For months, rebel groups in the Niger Delta had grown fragmented and corrupt, kept wealthy by selling black market oil and accepting government handouts. Too many personalities had emerged for one cohesive fight.
All that might be changing. The Movement for the Emancipation of the Niger Delta, an umbrella group whose colorful threats rarely used to pan out, seems to be able to deliver now that the various rebel factions are united against the government.How soon will the storm battering Nigeria, the third-largest provider of crude oil to the United States, calm waters again? Hold on, because this is not your typical hurricane.
This just in:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.
Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.
Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.
The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.
My guess is that the markets will take this as a signal that the Fed will lower rates at its next meeting.
Quality snark here from Alex Tabarrok:
Thanks goodness we bailed out Bear Stearns back in March if we hadn't we might have lost Fannie Mae and Freddie Mac, Lehman Brothers, Merrill Lynch and who knows what else. Oh wait...
For what it's worth, I think defenders of Treasury and the Fed's moves over the past few months would say that euthanizing Bear Stearns was the right move -- letting it suddenly implode without federal support would have made the situation much worse -- and it gave time for Lehman Brothers to die a slow, orderly death. Wall Street has had months to prepare for today, and that's why Paulson felt he needed to draw a line here and now and say, "no mas."
With the markets howling, it's easy to think he made a bad call, but that's to be expected. Only time will tell if he was right.
It may not be the preferred measure by economists and policy makers, but the Canadian government has noticed an interesting trend among organized crime groups -- they, too, are ditching the dollar:
The weakened US dollar has fallen out of favor with organized crime groups to pay for drug shipments or to settle scores, a Canadian government report said Friday. And if the greenback continues its slide in 2008, as expected, more and more criminals are likely to exchange euros for illicit goods, said Criminal Intelligence Service Canada in its annual report.
The report also cites increasing incidence of "environmental crime" -- groups developing "underground markets for electronic waste and scarce natural resources." If nothing else, Canadian organized crime seems to be ahead of the curve. Money laundering and racketeering sound so 20th century.
Ireland's drinks industry is suffering from withdrawal with pubs closing at the rate of one a day, as the party years of the Celtic Tiger boom become a blurred memory. The economic downturn allied to a changing drinking culture has led to 400 pubs closing over the past year, according to Michael Patten, chairman of the drinks industry representative body.
(Hat tip: Passport reader Eric Jon Magnuson)
In light of today's news about the financial shock and awe that international investors are raining down upon Russia's markets, Dan Drezner highlights this bit from our recent Seven Questions interview with the very smart Clifford Kupchan:
As far as portfolio investors and the Russian stock market are concerned, the main tipping point was the four days following July 24, when TNK-BP's Robert Dudley left the country, and shortly after that, Putin went after the steel company Mechal and took about $6 billion off its capitalization. Those behaviors really rattled investors and caused a steep dip in the Russian stock market. The war’s effect has been less dramatic.
More broadly, I think Russia as an island of stability and a safe haven from the credit crunch—that perception of Russia is on life support. Essentially over. There’s been four reasons: TNK-BP, Mechal, the Russian government’s willingness to use administrative means to break up cartels and implement de facto price controls (which means there's more strategic risk in consumer sectors as well as strategic sectors), and fourth is the war. When you add those four together, the investment climate has taken a real, real hit over the last month.
As the always-insightful Peter Baker noted yesterday, many of those hardest hit by the recent decline in Russia's stock market index have close ties to Prime Minister Vladimir Putin. Call it karma.
Daniel Gross tries to explain why Maine lobster is getting less expensive while other foods are doing the opposite:
At root, the global forces that are driving up the price of food don't significantly affect the vacation lobster business in Maine. Commercial and consumer demand doesn't vary much for off-the-boat lobster. Sure, many lobsters are sold to processing plants. But unlike other seafood products—think of canned tuna, or clam sauce, or frozen fish fillets—lobster is not produced or marketed on a mass global scale, which also means there are no speculators trying to make a killing on lobster futures. The fact that people are eating more and better in China and India isn't much boosting the demand for lobsters from Maine. Even in the United States, lobster remains to a large degree a regional product. [...]
With demand down, and with distributors facing higher costs, there has been significant pressure on lobster producers to keep costs low.
Isn't this analysis too complicated? Isn't Maine lobster simply a luxury good, the price of which falls when times get tough and demand -- primarily from the United States and Canada -- drops? That's what one ShopRite owner thinks:
The price has come down, but more important, what I'm hearing is, the supply side to supermarket retailers is better because tourist consumption is down in Maine," he said. "So there's been more consistent supply."
(Hat tip: Tyler Cowen)
Think the declining dollar is a bane for American consumers but a boon for everyone else? Think again. Even in Dubai, where glitz and glamorous construction continues unabated and soveriegn wealth funds prowl international markets, the consequences are showing up where you wouldn't expect:
Taxi drivers have become more fractious as fines for bad driving or declining to pick up passengers have eaten into pay packets that have also been eroded by the weakness of the United Arab Emirates dollar-pegged dirham against currencies in their home countries.
Dubai is now in talks with Pakistan after attempting to deport some 50 drivers who went on strike last month. The drivers were fed up with increased regulations and the rising cost of living, which the declining dirham doesn't help.
But the systemic problems caused by the dollar's slide aren't going to be so easy to whisk away. The emirate's record-setting growth is fueling inflation, and the weakened dirham is making imports more expensive. Despite speculation late last year that the UAE would drop the dollar, nothing seems to have changed since February, when the central banks of the Gulf Arab countries restated their commitment to the greenback. We'll see how long they can hold out.
What do you do if you're a growing, quasi-capitalist dictatorship and you're confronted by the specter of rising prices?
If you're Vietnam, you simply outlaw them:
Vietnam announced tough measures to contain rampant inflation on Monday, warning companies they could be prosecuted for passing on higher commodity costs to customers.
The government will prosecute or revoke the licences of companies that increase the prices of goods without sufficient justification, part of a plan to freeze prices for the rest of the year on goods ranging from coal to public transport.
At 27 percent, Vietnam suffers from the highest rate of inflation in Asia. But simply banning it isn't going to work -- it will just create shortages and black markets -- and moreover it sends the wrong signal about the country's direction. It seems Vietnam's rulers still have a lot to learn about this whole capitalism thing.
A food porter carries a basket on his head at Kawran Bazaar, a sprawling, 24-hour complex of wholesale food markets in Dhaka, Bangladesh. Kawran Bazaar, which really comes to life after midnight, is the entry point for much of the food in the Bangladeshi capital. According to a recent World Bank study, Bangladesh is among at least 33 countries that are at risk of serious political unrest if food and fuel prices keep rising. Bangladesh is currently one of the world's poorest countries, where nearly 40 percent of the 144 million population survive on less than a dollar a day and on average spend 80 percent of their income on food.
Tuesday's collapse in negotiations in the Doha trade talks was not a complete surprise, yet seemed to amplify the dour mood recently regarding the global economy. As always is the case with trade talks, there were winners and there will be losers.
Despite arguments from some development groups that no deal was better than the one on the table, the Financial Times reports today that poorest countries are the big losers from the breakdown in talks:
The impact of failure is going to be substantial," said Uhuru Kenyatta, Kenya's trade minister. "It's always the poorest of the poor who carry the biggest burden."
Among the hardest hit are African cotton farmers, who had hoped for a cut in U.S. cotton subsidies, as well as a contingent of banana-exporting countries hoping for a cut in tariffs from the EU. On the other hand, a rival banana bunch from West Africa, the Caribbean, and the Canary Islands pay no EU import tariff and are happy to see the competition miss out on a deal.
Other winners include, of course, developed-country agriculture interests, who remain shielded against foreign competition by a phalanx of tariffs and subsidies. Some farmers in the United States, however, as well as those in the developing world, will miss out on new markets for their products.
That said, before the recent talks began, some poor countries expressed concern that trade liberalization would open markets too quickly. All in all, the cost to the global economy from the Doha round's demise is hard to quantify and, in the end, not all that large. It's not like trade is going to suddenly dry up. But the talks' failure definitely doesn't do much to improve the mood.
Malhotra is having second thoughts. He's done the math and realized that once taxes and insurance costs are added, the price of the entry-level Nano rises to just over $3,000. For an extra $500, he says, he could buy a decent used car with a more powerful engine and air conditioning, which the Nano won't have.
To make things worse, rising global steel prices and a recent flood at the Tata factory in East Bengal are slicing the company's profit margin razor thin. Given that increasing the price isn't really an option since the price is the whole point, the ambitious project's prospects look dim.
Maybe Thomas Friedman didn't have to worry after all.
Osama bin Laden once said that his goal is "bleeding America to the point of bankruptcy." Maybe he should have gotten into the mortgage business instead of becoming a terrorist.
Zubin Jelveh blogs a new IMF working paper by Hui Tong and Shang-Jin Wei, who look at the responses by economic forecasters and consumers to 9/11 vs. their reactions to the subprime mortgage crisis. As you can see, everybody pretty much shrugged off 9/11 (at least when it comes to the economy; emotional grief is, of course, beyond measure) after about six months, but subprime has brought a steady decline in confidence:
Finally, a political indicator I can get behind. Coca-Cola sales are a key signal of peace and prosperity in Africa, according to an intriguing theory from Jonathan Ledgard, The Economist's Africa correspondent.
Africans buy more than 36 billion bottles of Coca-Cola each year, and the price is low enough that many even in the most impoverished villages can afford a bottle now and then. Folks love their Coca-Cola: As the largest private employer on the continent, Coca-Cola is so entrenched in hearts that people go to the grave with the stuff. And since Coca-Cola tracks its sales and distribution in Africa down to the most minute details, any swift drops in sales or problems in the distribution chain can point to real-time economic hardship and instability.
In other words, if Coke sales drop off swiftly and suddently in parts of, say, Kenya, there is a good chance that either the area has become too dangerous for deliverymen to make their rounds or that something catastrophic is happening to people's incomes. Either way, bad news.
Having been raised on Coca-Cola myself, this seems intuitive. In the O'Hara household, drinking the last Coke without picking up another 12-pack was tantamount to a declaration of war.
Zimbabwe's plan to combat the hyperinflation that has reached more than 2.2 million percent? Knock off the zeroes:
This time, we will make sure that those zeroes that would come knocking on the governor's window will not return,” [Reserve Bank Governor Gideon] Gono was quoted as saying on Saturday in a speech to farmers. [...] Even state media reported Mr Gono's comments "drew laughter" from his audience.
The governor is expected to chop three or six zeroes from the currency, following a three-zero cut in 2006.
A few weeks back, I blogged a Times of India story about how China's construction boom was driving up iron prices, resulting in widespread theft of manhole covers in Mumbai.
Now, the New York Times is reporting that the epidemic of manhole theft is spreading throughout the United States as well. In Philadelphia alone, 2,500 covers have been stolen in the last year, costing the city at least $300,000. Widespread manhole-cover theft has also been reported in Long Beach, Cleveland, Memphis, Miami, and Milwaukee. Some cities are now switching to plastic covers or welding down the metal ones.
Police are trying to crack down on junkyards, but as one North Philadelphia scrap metal collector reports, the demand curve is not in their favor:
These guys here," Mr. Sergeant said, pointing at one scrap yard, "They’d buy a police cruiser and melt it down if we brought it in. The prices for metal are just that good these days."
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