TIME China

Anyone Expecting a Rebound in Chinese Growth Won’t Like the New GDP Figures

Construction sites and vacant streets in Xiangluo Bay.
Construction sites and vacant streets in Tianjin, China. The new central business district, under construction in Tianjin, was touted as another Manhattan, but is now a ghost city. The nation's slowing economy is putting the project into jeopardy Zhang Peng—LightRocket/Getty Images

Say hello to China’s new normal

Those who remain hopeful about the future of the Chinese economy got some extra evidence to bolster their case today. On Tuesday, the government announced that GDP in the third quarter rose by a slightly better-than-expected 7.3%.

But don’t get too excited. That 7.3% is the slowest quarterly pace in five years — since the depths of the recession after the 2008 Wall Street financial crisis. And it was pushed higher likely by exports. In other words, external demand, not investment or consumption in the domestic economy.

There is really nothing surprising about these figures. This is China’s new normal. The double-digit pace the global business community has come to expect is very likely a thing of the past. More and more economists are predicting that China’s growth rates will continue to slow over time. The International Monetary Fund, for instance, sees growth dropping from 7.4% this year to 6.8% in 2016 and 6.3% in 2019.

There are too many factors at work slowing down the Chinese growth machine. First of all, no economy can grow 10% a year forever, not even China’s. The country is no longer the impoverished backwater it was in the early 1980s, when Beijing’s market reforms first sparked its growth miracle. It is now the second largest economy in the world, and the bigger China gets, the harder it becomes to post such large annual GDP increases. There are also structural forces at work. China’s population of more than 1.3 billion is aging rapidly, thanks in part to Beijing’s restrictive one-child policy, and that will act as a long-term drag on growth. The workforce is already shrinking.

The only question is: How slow will China go? The answer depends on how optimistic you are that China’s current leaders can fix the very serious problems plaguing the economy.

Aspects of the growth model that have driven China’s exceptional performance — state-directed investment, easy credit — have now come to spawn all sorts of new risks. Debt levels at Chinese companies have risen precipitously, money has been wasted on excess capacity and unnecessary construction, and bad loans at Chinese banks have been rising as a result. The economy is paying the price.

A big reason behind the country’s slowdown today is the deteriorating property market, brought low by irrational exuberance and excessive building. Official data shows that the amount of unsold real estate has doubled over the past two years, and that has caused prices to fall and investment in new developments to dry up. The central bank recently loosened restrictions on mortgage lending to boost sluggish demand, but most economists don’t expect such moves will stimulate a rebound anytime soon. There are even concerns that China is following a pattern similar to Japan’s when the latter Asian giant had its financial crisis in the early 1990s.

The long-term solution to these problems requires nothing less than overhauling the way in which the economy works. The country’s leaders realize this, too, and have pledged to undertake a thorough reshaping of the economy to give the private sector more influence. Policymakers intend to make the economy more market-oriented by liberalizing finance and capital flows and withdrawing the control of the state. Such steps would probably lead to enhanced productivity, better allocation of finance and stronger innovation — all things China needs badly as its costs rise with its wealth.

So far, though, there has been little progress. A free-trade zone in Shanghai, launched a year ago to experiment with freer capital flows in and out of the country, has never got off the ground. A series of investigations into the business practices of multinationals operating in China has raised questions about Beijing’s willingness to open up the economy further to foreign competition.

Of course, the liberalization Beijing has promised will take a long time to implement. But if the effort doesn’t progress, growth will likely suffer. The Conference Board in a recent report predicted that growth would slow to 4% a year after 2020, in part because its economists believe China’s leaders won’t go far enough in reforming the economy.

What this all means for businessmen and investors around the world is that China may not play the same role in upholding global growth in coming years as it has in the past. The new normal may not lift the gloomy spirits dominating global markets these days, either. But we’ll all have to get used to it.

TIME Research

A Lot of Men Got Vasectomies During the Recession

vasectomy
Getty Images

Up to an additional 150,000 to 180,000 per year between 2007 and 2009

The recession was accompanied by a sharp increase in the number of American men who underwent vasectomies, according to research presented Monday, though it’s unclear if economic woes actually led to more procedures.

Researchers from Weill Cornell Medical College looked at survey data from the National Survey for Family Growth, which interviewed more than 10,000 men between 2006 and 2010, according to the American Society for Reproductive Medicine. They wanted to get a sense of how the economic downturn from 2007 to 2009 affected men’s decisions about having kids.

Before the recession, 3.9% of men reported having a vasectomy, but 4.4% reported having one afterward, which the researchers calculated to mean an additional 150,000 to 180,000 vasectomies during each year of the recession.

The researchers also found after the recession that men were less likely to be employed full-time, and more likely to have lower incomes and be without health insurance. Nothing changed when it came to men’s desire to have children, but those who were interviewed after the recession were more likely to want fewer children.

It’s important to note that the study, which is being presented at the American Society for Reproductive Medicine’s 70th Annual Meeting, does not prove causation, meaning it’s unclear whether men were undergoing surgery for financial reasons. Though the researchers do conclude that their findings suggest Americans may be factoring economics into family planning—which is not necessarily a new trend.

TIME Economy

What You Need to Know About the Stock Market Sell-Off

For the last few years, markets were from Mars, and the real economy was from Venus. The two literally occupied different worlds, as stock prices kept rising, even as wages were stagnant and growth was slow. As of yesterday, that divide has been bridged. Stock prices finally plunged into a real correction of the kind we haven’t seen since the apex of the European debt crisis three years ago.

The question is, why now? The answer comes in two parts. First, with Europe in danger of tipping into recession, and China’s growth much lower than the official statistics would indicate (that’s one of the big reasons oil prices are down since China is now the world’s major consumer of energy), investors have realized that a wimpy recovery in the U.S. isn’t enough to buoy global growth. Sure, growth numbers were a bit better this year than last, but we’re still in a 3 percent economy that doesn’t look or feel much different than the 2 percent economy (see my Curious Capitalist column on that topic). If you think of the global economy as three legs on a stool, the legs being the U.S., Europe, and the emerging markets led by China, what’s becoming very clear to markets is that a 3 percent economy in the U.S. isn’t enough to sustain global momentum. Indeed, the U.S. may grow faster than the world as a whole this year, which is an odd thing for a developed market. It speaks to how weak the global economy as a whole still is.

Second, markets have realized that this recovery has been a genetically engineered recovery. It’s been engineered by the monetary scientists at the Fed, who’ve pumped $4 trillion into the economy since 2009 in an attempt to strengthen an economy that is fundamentally not as strong as it looks. Despite the Fed’s best efforts (and I agree that they needed to do something, especially in the beginning), the real economy simply hasn’t caught up to the markets. Unemployment has ticked down, but wages still haven’t ticked up. It’s no accident that weak retail sales in the U.S. were one of the economic indicators that triggered the sell-off. As I’ve said many times before, you can’t have a sustainable recovery, one markets can really believe in, until you have the majority of the population with more money in their pockets.

The reality is that this hasn’t happened in the last few years, and for many people, decades (the average male worker today makes less in real terms than he did in the early 1970s).

So does this mean we are in for a long, slow slide? Not exactly. I’d bet more on increased volatility (if you are a subscriber, you can read this piece I wrote on the coming Age of Volatility, back in 2011). Markets will go up and down, but as long as the U.S. is the prettiest house on the ugly block that is the global economy, money may stay parked in the largest American multinationals longer than you’d think. Whether or not our economy deserves the vote of confidence is another question.

TIME Markets

Stock Markets Are Waking Up to Economic Reality

An investor holds a child in front of an electronic screen showing stock information at a brokerage house in Shenyang
An investor holds a child in front of an electronic screen showing stock information at a brokerage house in Shenyang, Liaoning province, Oct. 16, 2014. Sheng Li—Reuters

Misguided policy is undermining growth and creating new risks

Stock markets are supposed to be indicators of where economies are headed. The recent sell-off in global equities, however, shows investors are just catching up with the headlines. Wall Street had powered through the gloomy news emanating from much of the global economy for most of the year, with indices scoring one record after the next. But now investors seem to have finally woken up to the world’s woes, causing the bulls to stampede. On Wednesday, the Dow Jones Industrial Average plunged by as much as 2.8%, and even though it later recovered, it has still fallen by 5% in five days. That followed a terrible day on European bourses, with the German and French markets suffering large losses. The trouble continued Thursday in Asia, with losses in Tokyo and Hong Kong.

Financial markets are reacting to what should have been obvious to investors for some time — growth is stumbling in just about every corner of the planet. And we can blame some pretty gutless policymaking for it. From Beijing to Brussels to Brasilia, governments are failing to implement the reforms we need to finally lift the global economy out of the protracted slump tipped off by the 2008 financial crisis.

The situation is most infuriating in Europe. The International Monetary Fund recently cut its forecast for euro zone GDP growth to a mere 0.8% this year. Germany, the largest and supposedly strongest economy in the zone, is projected to expand only 1.4%, while Italy, the zone’s third-largest economy, will likely contract again in 2014. Unemployment remains stubbornly high at 11.5%. Meanwhile, the leaders of Europe seem unconcerned and have done little to encourage growth or job creation. At a European level, the process of forging greater integration and bringing down remaining barriers to cross-border business has stalled, while the record of individual governments in liberalizing markets and fixing broken labor systems is at best mixed. Mario Draghi, the president of the European Central Bank, has fallen behind the curve in preventing prices from falling to dangerously low levels, raising fears of deflation, which would suppress consumption and investment even further. No wonder more analysts are worried Europe is facing “Japanification” — a potentially destructive, long-term malaise similar to what has been experienced in Japan.

Speaking of Japan, the program of Prime Minister Shinzo Abe — dubbed “Abenomics” — is being exposed as a failure. Massive monetary stimulus from the Bank of Japan has not jumpstarted growth, while Abe, with government finances increasingly under strain, has had to hike taxes, dampening consumption and denting growth even further. The promised structural reforms that could raise the economy’s potential, from loosening up labor markets to opening protected sectors, have barely gotten off the ground. The IMF sees Japan’s GDP expanding a meager 0.9% in 2014.

The story in emerging markets isn’t much better. Once high fliers have crashed down to earth. Brazil’s economy will likely grow a pathetic 0.3% this year, while Russia, plagued by sanctions, will be lucky to avoid a recession. Even China is struggling. Though growth remains above 7% — at least officially — economists are just now starting to realize such rates are probably the country’s “new normal.” Facing a property slump and excessive debt, the economy will continue to slow down in coming years. Beijing’s policymakers have promised a lot of the liberalizing reforms that could fix China’s growth model, but they have implemented almost none of that program. A free-trade zone that was to be a critical experiment in more open capital flows, launched with great fanfare in Shanghai a year ago, has languished as policymakers drag their feet on implementation.

There are occasional bright spots, though. It looks like India is rebounding, while growth in some other developing nations, such as the Philippines, remains healthy. But that won’t be enough to stir prospects globally. And while the U.S. is better off than most other advanced economies, the inability of Washington to confront problems like income inequality or sagging infrastructure is holding the economy back.

What we are witnessing around the world is a slowdown created to a large degree by bad policymaking and political inaction. In fact, you could make the argument that what steps have been taken have only made matters worse. The long-running easy money policies of the Federal Reserve probably helped to propel the prices of stocks and other assets upward, detaching them from the underlying fundamentals of the global economy and making them vulnerable to sudden shocks and shifts in sentiment.

Perhaps what we’re seeing in global stock markets is a temporary correction or short-term adjustment. Or perhaps markets are telling us things will be much worse than we expect in coming quarters. Either way, it seems like investors are finally swallowing a dose of economic reality.

TIME

The Chicken Littles Were Wrong. But Americans Still Think the Sky Is Falling.

The list of false prophesies of doom by Obama's critics is long.

The U.S. economy has added jobs for 55 consecutive months, bringing unemployment below 6 percent. The budget deficit has fallen from $1.2 trillion when President Obama took office to less than $500 billion today, from an unsustainable 10 percent of GDP to a relatively stable 3 percent. More than 10 million Americans have gained health insurance through Obamacare, while medical costs are growing at their lowest rate in decades. Gasoline prices are gradually dropping. Medicare’s finances are dramatically improving.

The sky, in other words, is not falling. On the contrary, things keep getting better. Which means a lot of people have a lot of explaining to do.

To recognize that America is doing better is not to suggest that America is doing great. Wages are too low. Washington is dysfunctional. There’s too much depressing news about Ebola, gridlock and our perpetual conflicts abroad. But the Cassandras of the Obama era ought to admit their predictions of doom were wrong. There has been no hyperinflation, no double-dip recession, no Greece-style debt crisis, no $5-a-gallon-gas, no rolling blackouts, no “insurance death spiral.” Despite “job-killing tax hikes” and “job-killing regulations” and “job-killing uncertainty” created by the “job-killing health care law,” private employers are consistently creating more than 200,000 jobs a month. Our gradual recovery from the 2008 financial crisis continues apace.

Some of the wrong predictions of the last six years merely reflected the paranoia of the Tea Party right—or the cynical exploitation of that paranoia. In 2008, Newt Gingrich got some attention by warning that President Obama would muzzle Rush Limbaugh and Sean Hannity; it worked so well that in 2012, he predicted that Obama would declare war on the Catholic Church the day after his reelection. The National Rifle Association’s fever-screams that Obama would cancel the Second Amendment and seize America’s guns have not come to pass, either, although they helped boost gun sales. Sarah Palin’s “death panels” also have yet to materialize.

It’s doubtful that those opportunists ever believed their own Chicken Little rhetoric; when their doomsday warnings were proven wrong, they simply issued new doomsday warnings. But other prophecies of doom reflected a sincere view of the economy and other public policy issues that simply happened to be incorrect.

The government response to the financial crisis probably inspired the most wrongheaded commentary. Critics complained that the Wall Street bailouts begun by President Bush and continued by Obama would cost taxpayers trillions of dollars. “If we spent a million dollars ever day since the birth of Christ, we wouldn’t get to $1 trillion,” fumed Darrell Issa, the top Republican on the House government oversight committee. Ultimately, the bank bailouts cost taxpayers less than nothing; the government has cleared more than $100 billion in profits on its investments. Obama’s bailout of General Motors and Chrysler also inspired some overheated commentary; Mitt Romney wrote that if it happened, “you can kiss the American automotive industry goodbye.” But it did happen, and the American automotive industry is now thriving, saving an estimated 1.5 million jobs.

It’s fun looking back at misguided crisis predictions. Liberal critics like Paul Krugman warned that the banking system would collapse unless it was temporarily nationalized; Krugman scoffed that Treasury Secretary Tim Geithner’s “stress test” would never end the crisis. “He was right,” Krugman later admitted, “I was wrong.” Conservatives like Dick Morris warned that the president’s $800 billion fiscal stimulus package and other activist policies would create an “Obama Bear Market”; in fact, the Dow has soared more than 250 percent since bottoming out in March 2009. Conservatives like Paul Ryan have also consistently warned that the Federal Reserve’s aggressive monetary stimulus would weaken the dollar—their preferred phrase is “debase the currency”—and create crippling inflation. They have been consistently wrong, as inflation has remained stubbornly low.

After the Great Recession ended in the summer of 2009—sooner than anyone (especially historians of financial crises) predicted—Republicans quickly turned their attention to the budget deficit, which had ballooned to $1.4 trillion. They complained that America was becoming Greece, that we were spending our way into a sovereign debt crisis, that brutal increases in interest rates were on the way. But America did not become Greece. There has been no debt crisis. Interest rates have remained historically low. In fact, despite the howling on the right, non-military spending (excluding mandatory expenses like Medicare) has dropped to its lowest level since the Eisenhower administration. Oh, and speaking of Medicare, its financial position has gotten so much better—thanks to a general slowdown in health care costs—that its trust fund, which was expected to go bust in 2017 when Obama took office, is now expected to remain solvent through 2030.

That slowdown in medical costs is another example of a phenomenon that critics confidently predicted would never happen in the era of Obamacare. Also, the administration would never meet its goal of 7 million signups by April 2014. (The actual figure topped 8 million.) Yes, but they would never pay their premiums. (The vast majority did.) OK, but those premiums would surely soar. (They haven’t.) Still, the entire program will be doomed to a “death spiral” unless healthy young people sign up in large numbers. (They have.)

Nevertheless, most Americans seem to think that Obamacare is a failure, that the economy stinks, that the deficit is getting worse. There are many explanations for those beliefs, but one is surely that initial predictions of doom are uncritically reported at the time and conveniently forgotten once they’re disproven. There is no penalty in American politics for being wrong. Republicans paid no price for their confident predictions that President Clinton’s tax hikes would destroy the economy, that the Bush tax cuts would pay for themselves, that the Obama tax hikes would create a double-dip recession. Even after the BP spill, petroleum interests proclaimed that tighter regulations on offshore drilling would ravage the oil industry and punish Americans at the pump; domestic production is at an all-time high while gas prices are steadily dropping, but they haven’t changed their tune at all. Similarly, even after the financial meltdown, Wall Street moneymen said financial reforms would shred our free enterprise system; they’re still whining despite their record profits.

Obama is often guilty of rhetorical overkill, too. He’s always warning that Armageddon is just around the corner—when Republicans blocked his American Jobs Act and other infrastructure bills, when they insisted on the deep spending cuts in the “sequester,” and when they threatened to force the Treasury to default on its obligations. (Actually, that last one almost did create Armageddon.) But because he’s president, the media correctly holds his feet to the fire, pointing out that he didn’t keep his promises to fix Washington or let you keep your insurance if you like it. There’s less accountability for his critics on the left and the right.

There’s no need for sympathy; Obama volunteered for the job. He gets a cool plane and a nice house regardless of public perceptions about the state of the country. But if you want to know why voters think the false prophets were right, maybe it’s because nobody ever corrected them.

TIME Economy

Report: Richest 1% Holds Nearly Half of the World’s Wealth

Luxury Superyachts At The Monaco Yacht Show
A Porsche 918 Spyder automobile, produced by Porsche SE, sits on the deck of the 88m luxury superyacht Quattroelle, in Monaco, France, on Wednesday, Sept. 25, 2013. Balint Porneczi—Bloomberg / Getty Images

A new Credit Suisse report finds the gap between rich and poor widening on a global scale

The world not only surpassed a new milestone of wealth creation in 2014, but the richest 1% now own nearly half of the planet’s wealth, according to a new Credit Suisse report published Tuesday.

The Global Wealth Report estimated that the world’s combined wealth reached $263 trillion in 2014, a $20.1 trillion increase over the previous year. It marked the highest recorded increase since the financial panic of 2007, but the greatest accumulations of wealth occurred at the very upper echelons of earners.

“Taken together, the bottom half of the global population own less than 1% of total wealth,” the report said. “In sharp contrast, the richest decile hold 87% of the world’s wealth, and the top percentile alone account for 48.2% of global assets.”

Credit Suisse also noted widening gaps between the rungs of the wealth ladder: While only $3,650 would place a person in the wealthier half of the global population, $77,000 was needed to reach the top 10% and $798,000 to hit the top 1%.

TIME Economy

France’s Jean Tirole Wins Nobel Prize for Economics

Jean Tirole Nobel Prize Economics
French economist Jean Tirole poses at the School of Economics in Toulouse, France on June 2, 2008. Eric Cabanis—AFP/Getty Images

Tirole won for his ‘analysis of market power and regulation’

French economist Jean Tirole has won the 2014 Nobel prize for economics.

Tirole, a professor of economics at Toulouse University, won for his “analysis of market power and regulation.”

On Friday, Pakistani school girl Malala Yousafzai and India’s Kailash Satyarthi both won the Nobel Peace Prize for their work defending education rights for children.

This article originally appeared on Fortune.com

TIME ebola

The Economic Costs of Ebola Are Rising Too

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Picture taken on Aug. 28, 2014, inside a plane of the Brussels Airlines bound for Monrovia, Liberia, one of the West African countries hit by the Ebola outbreak Dominique Faget—AFP/Getty Images

The longer the outbreak lasts and the farther the disease travels, the harder it will hit global growth

A few days ago I was about to board a flight from Beijing to Moscow and I called my mother in New Jersey to tell her I was going on the road. “Be very careful!” she exclaimed, with more angst in her voice than usual. I told her that even though relations between the U.S. and Russia were strained that I’d be perfectly fine in Moscow. But that’s not what she was worried about. “Be careful of Ebola!” she said.

I was, of course, traveling nowhere near any Ebola-hit region — the disease has so far been generally confined to far-off West Africa. Her fear, though, is very real, and to a certain extent, rational. When an epidemic of a disease as deadly as Ebola infects the world’s headlines, it is only natural for people to consider curtailing their travel and other usually normal activities in an attempt to avoid the virus. As the disease spreads, people will become more likely to postpone business trips or cancel family vacations.

And that ultimately could have serious economic consequences. Nothing of course is more tragic than the human cost of the Ebola outbreak. But as the crisis persists, economists are beginning to look at what the toll might be for the global economy as well. In a world still climbing out of the financial meltdown of six years ago, we can hardly afford any new disruptions to investment and consumer spending that could further drag down growth.

That, however, is exactly what a sustained Ebola epidemic could do. We can get a pretty good idea of what can happen from looking at the impact of SARS in East Asia in 2003. Wherever the disease went, people stopped doing what they would normally do, in order to protect themselves, and that had an immediate effect on demand. Restaurants that would usually be jam-packed in central Hong Kong appeared abandoned; flights almost always crammed took off nearly empty; hotels emptied. Though the overall economic damage from SARS was in the end minimal, since it was contained relatively quickly, if the disease had spread more widely or become more entrenched, the cost would have risen precipitously.

We can already see that happening in West Africa. A recent World Bank study estimated that if the epidemic is not contained quickly, it would cost Liberia 12% of its GDP by the end of 2015, and Sierra Leone 8.9% — a loss these poor nations can ill afford. If the outbreak spreads more widely to neighboring countries with larger populations and economies, the World Bank figures the two-year financial cost could reach $32.6 billion. Travel to the region has already plummeted. John Grant, executive vice president of aviation-information provider OAG, recently calculated that the number of scheduled flights out of the worst-hit countries have dropped by 64% since May. Major carriers including British Airways and Delta Air Lines have suspended flights. The president of Dubai-based Emirates noted that the Ebola outbreak has dampened demand in Asia for flights to Africa.

What makes these losses even more unfortunate is that Africa has been in the middle of a major economic revival. For much of the past half-century, poor governance, bad policy and recurring conflict kept Africa on the sidelines of a major surge in growth and wealth throughout much of the developing world, especially in Asia. But in recent years Africa has finally joined the growth party. The International Monetary Fund expects the GDP of sub-Saharan Africa to jump 5.1% in 2014 — faster than any other region of the developing world except for emerging Asia. For now, the IMF sees the impact of Ebola on Africa overall as limited. But if the disease spreads, it could derail what was becoming one of the most encouraging stories in the emerging world.

From a purely economic standpoint, the fact that the countries with the most severe Ebola outbreaks (Liberia, Sierra Leone and Guinea) are small and play a relatively minor role in world trade has minimized the impact the disease has had on the global economy. That, however, would change dramatically if Ebola spreads to larger economies that are more integrated into global finance and manufacturing. Imagine the chaos that could ensue if the empty restaurants and airplanes experienced in the SARS outbreak are repeated in New York City or London for any significant period of time and you’ll get an inkling of the damage Ebola could inflict on the world economy. That’s why the Ebola deaths recorded in the U.S. and Spain are of great economic significance.

“A sustained outbreak of a high mortality disease like Ebola in any large or important economy in the global supply chain would imply significantly larger impact than SARS caused,” Barclays analyst Marvin Barth wrote in a recent report. Such a situation, he added, “remains a tail risk, but has jumped in probability to one that can no longer be ignored.”

Predicting where Ebola might spread and how long the outbreak could last is, of course, impossible, and so is gauging its potential economic impact. What is clear, however, is that containing the disease is not just a humanitarian necessity but an economic imperative.

TIME Banking

Banking by Another Name

Traditional lenders aren't doing their job. Enter a raft of startups to do it for them

You know credit is tight when the former chair of the Federal Reserve can’t get a mortgage. Ben Bernanke, who isn’t exactly hard up (he reportedly makes at least $200,000 a speech), recently lamented that he wasn’t able to refinance his home because of tight credit conditions. This is an inglorious reminder that the housing recovery is being driven not by first-time home buyers or people who want to trade up but by wealthy people who don’t need a loan. Since most middle-class Americans still hold most of their wealth as equity in their homes, we won’t achieve a sustainable recovery until we fix the housing market.

Banks would say the difficult credit conditions reflect the higher costs of complying with new regulations like Dodd-Frank. There’s some truth to that but not enough to justify turning down nearly any borrower who can’t put down 30% cash on a house. A more accurate explanation is that home-mortgage lending isn’t nearly as profitable as securities trading, which is where big banks still make much of their money these days. And so, hidden in the sluggish housing recovery is another revolution: American banks continue to morph into investment houses in ways that could ultimately put our financial system at risk.

Rather than Bemoan this, I am encouraged by some of the innovative companies trying take advantage of these shifts. A whole new category of nontraditional lenders is springing up to take traditional banking’s place. Nonbank financial firms, a category that includes everything from companies like Detroit-based Quicken Loans to peer-to-peer lenders like the Lending Club, are growing exponentially. (Peer-to-peer lending is the relatively new practice of lending money to unrelated individuals without going through a traditional intermediary like a bank.) This category of nonbank banks is taking up a lot of the slack left by traditional banks in the aftermath of the financial crisis. During the first half of this year, almost a quarter of mortgages made by the top 30 lenders came from nonbank firms, the highest level since the financial crisis began.

Many of these lenders use unconventional metrics to judge how creditworthy borrowers really are. They’re focusing not just on borrowers’ salary and tax returns, which are the basis of most traditional mortgage-lending calculations, but also on their field of work, what kind of degree program they are in or what their potential income trajectory might be.

Such metrics enable these lenders to take on risks that traditional banks now shun. “There’s a misperception out there that millennials don’t want to buy a home,” explains Mike Cagney, CEO of Social Finance, a company that has already done over $1 billion in crowdsourced student-loan refinancing and is now pushing into the online mortgage market. “But the reality is that they don’t have the credit to do it.” Cagney says many of his initial mortgage borrowers mirror the profile of the customers to whom he gives reduced-rate student loans–upwardly mobile young professionals, many with degrees from top schools, who have bright futures in high-income professions but little cash in the bank. Particularly on the coasts, where real estate prices are high, it is nearly impossible for a young person to buy a home with a traditional credit profile.

Of course, it’s not only upwardly mobile future members of the 1% who deserve a break on credit. Research shows that many low-income borrowers with steady jobs are much better credit risks than they look like on paper. One University of North Carolina study found that even poor buyers could be better-than-average credit risks if judged on metrics other than how much cash they have on hand. That’s not to say we should have runaway borrowing as we did in the run-up to 2008, but credit standards are still very tight relative to historical averages.

Nontraditional lending has already shown there is an alternative to the not-very-public-minded banking system we have in place now. That raises the question, Why should big banks whose primary business model is no longer consumer lending be government-insured in the first place? (Many would argue that the bailout guarantee implicit in such insurance was the reason the too-big-to-fail institutions were able to leverage up and cause the subprime crisis in the first place.) Perhaps the safest thing would be for banking as a whole to go back to a model in which institutions simply keep a lot more cash on hand, or have unlimited liability as a hedge against risk taking? Who knows? That might make mortgage lending look good again.

TIME Economy

De Beers Warns Diamonds Aren’t Actually Forever

Supply could decline beginning in 2020 if no new mines are discovered

China may have the fastest-growing demand for diamond jewelry sales, but a major diamond cartel recently warned the supply may not last forever. De Beers, which accounts for about one-third of all sales, said production is expected to decline beginning in 2020 unless new mines are discovered.

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