TIME Economy

The Real Way to Fix Finance Once and for All

Bull statue on Wall Street
Murat Taner—Getty Images

Changing the way financial institutions operate will require more than calculations and complex regulation

We live in an age of big data and hot and cold running metrics. Everywhere, at all times, we are counting things—our productivity, our friends and followers on social media, how many steps we take per day. But is it all getting us closer to truth and real understanding? I have been thinking about this a lot in the wake of a terrific conference I attended this week on “finance and society” co-sponsored by the Institute for New Economic Thinking.

There was plenty of new and creative thinking. On a panel I moderated in which Margaret Heffernan, a business consultant and author of the book Willful Blindness, made some really important points about why culture is just as important as numbers, particularly when it comes to issues like financial reform and corporate governance. As Heffernan sums it up quite aptly in her new book on the topic of corporate culture, Beyond Measure, “numbers are comforting…but when we’re confronted by spectacular success or failure, everyone from the CEO to the janitor points in the same direction: the culture.”

That’s at the core of a big debate in Washington and on Wall Street right now about how to change the financial system and ensure that it’s a help, rather than a hindrance, to the real economy. Everyone from Fed chair Janet Yellen to IMF head Christine Lagarde to Senator Elizabeth Warren—all of whom spoke at the INET conference; other big wigs like Fed vice chair Stanley Fischer and FDIC vice-chair Tom Hoenig were in the audience—agree more needs to be done to put banking back in service to society.

MORE: What Apple’s Gargantuan Cash Giveaway Really Means

But a lot of the discussion about how to do that hinges on complex and technocratic debates about incomprehensible (to most people anyway) things like “tier-1 capital” and “risk-weighted asset calculations.” Not only does that quickly narrow the discussion to one in which only “insiders,” many of whom are beholden to finance or political interests, can participate, but it also leaves regulators and policy makers trying to fight the last war. No matter how clever the metrics are that we apply to regulation, the only thing we know for sure is that the next financial crisis won’t look at all like the last one. And, it will probably come from some unexpected area of the industry, an increasing part of which falls into the unregulated “shadow banking” area.

That’s why changing the culture of finance and of business is general is so important. There’s a long way to go there: In one telling survey by the whistle blower’s law firm Labaton Sucharow, which interviewed 500 senior financial executives in the United States and the UK, 26% of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24% said they believed they might need to engage in unethical or illegal conduct to be successful. Sixteen percent of respondents said they would commit insider trading if they could get away with it, and 30% said their compensation plans created pressure to compromise ethical standards or violate the law.

How to change this? For starters, more collaboration–as Heffernan points out, economic research shows that successful organizations are almost always those that empower teams, rather than individuals. Yet in finance, as in much of corporate America, the mythology of the heroic individual lingers. Star traders or CEOs get huge salaries (and often take huge risks), while their success is inevitably a team effort. Indeed, the argument that individuals, rather than teams, should get all the glory or blame is often used perversely by the financial industry itself to get around rules and regulations. SEC Commissioner Kara Stein has been waging a one-woman war to try to prevent big banks that have already been found guilty of various kinds of malfeasance to get “waiver” exceptions from various filing rules by claiming that only a few individuals in the organization were responsible for bad behavior. Check out some of her very smart comments on that in our panel entitled “Other People’s Money.”

MORE: The Real (and Troubling) Reason Behind Lower Oil Prices

Getting more “outsiders” involved in the conversation will help change culture too. In fact, that’s one reason INET president Rob Johnson wanted to invite all women to the Finance and Society panel. “When society is set up around men’s power and control, women are cast as outsiders whether you like it or not,” he says. Research shows, of course, that outsiders are much more likely to call attention to problems within organizations, since not being invited to the power party means they aren’t as vulnerable to cognitive capture by powerful interests. (On that note, see a very powerful 3 minute video by Elizabeth Warren, who has always supported average consumers and not been cowed by the banking lobby, here.)

For more on the conference and the debate over how to reform banking, check out the latest episode of WNYC’s Money Talking, where I debated the issue on the fifth anniversary of the “Flash Crash,” with Charlie Herman and Mashable business editor, Heidi Moore.

TIME Economy

Unemployment Rate Drops to Near 7-Year Low

Jobseekers wait to talk to a recruiter at the Colorado Hospital Association's health care career event in Denver, Oct. 13, 2014.
Rick Wilking—Reuters Jobseekers wait to talk to a recruiter at the Colorado Hospital Association's health care career event in Denver, Oct. 13, 2014.

But the numbers from March are far worse than expected

U.S. employers added 223,000 jobs in April, just 3,000 more than economists had anticipated, but signaling a labor market rebound following a poor showing in March that was dented by poor weather.

The Labor Department published April’s employment figures Friday morning, with the report showing job gains for professional and business services, health care, and construction. While it is encouraging that job growth last month exceeded Wall Street’s expectations, March was even worse than anticipated. Revised figures showed U.S. employers added just 85,000 jobs in March, far worse than the original reported figure of 126,000 and the smallest since June 2012.

Here are the highlights from this morning’s jobs report.

What you need to know: April was the 55th straight month of employment gains in the U.S. The growth last month also returned the U.S. labor market to +200,000 territory. The economy had been on a 12-month streak of gains above that threshold until it was derailed by a poor showing in March.

Hourly wages climbed just 3 cents to $24.87, and over the year average hourly earnings grew by just 2.2%. The wage gains in 2015 have so far fallen short of the 3% annual wage growth that was seen prior to 2007. That weakness comes even as many major retail and restaurant chains have issued splashy announcements proclaiming promises to hike up wages for their lowest paid employees.

The big numbers: The nation’s unemployment rate slipped to a near seven-year low of 5.4% in April from 5.5% the prior month, matching the expectations of economists surveyed by Bloomberg. The number of long-term unemployed was little changed at 2.5 million.

What you may have missed: A few industries reportedly fairly balanced job growth last month. The professional and business services sectors led the charge, but health care and construction job gains weren’t too far behind.

A notable laggard was mining, which the Labor Department reported saw a drop in employment of 15,000. Much of those losses were for mining and oil and gas extraction. Muted energy prices have pressured that industry, resulting in job losses for a sector that had until recently been a star performer.

This article originally appeared on Fortune.

TIME marketing

Why McDonalds’ Hamburglar Makes No Sense

McDonald's Hamburglar
McDonalds McDonald's Hamburglar

The numbers here don't add up

McDonalds sent the Internet into a temporary tailspin Tuesday when it announced it’s bringing back the Hamburglar, prompting a deeply strange discussion over whether or not the personified marketing tactic is effective.

But there’s a more important point to be made: The Hamburglar’s prime motivation— hamburger theft, hence the moniker—makes no sense, economically.

The stuff that’s most frequently targeted by thieves, like money, jewelry and cars, is stolen because it’s high-priced. That’s why smartphone makers are trying to reduce theft of mobile devices by letting their owners brick them from afar for example. If a stolen smartphone gets bricked, it’s no longer worth anything to potential buyers—which should in turn mean less smartphone theft overall.

Stealing hamburgers makes no sense because burgers keep their already low value for one, two hours tops. By then, they’re cold and inedible. (And don’t even try to pull that microwave nonsense, because nobody wants a reheated Big Mac.) Volume is a questionable motivation here too, because the Hamburglar’s method of stashing his burglared burgers in a big sack puts them at high risk of losing their structural integrity. (Speaking from anecdotal experience.)

You might argue the Hamburglar is stealing burgers for his own consumption, Cookie Monster style. But there’s little evidence of that. Just look at the guy—does that look like someone who subsists mostly on Big Macs? Hardly.

Then there’s the chance that, like The Dark Night’s Joker, the Hamburglar just wants to watch the world burn. He’s an element of chaos in McDonaldland, unpredictable and terrifying because his actions aren’t grounded in logic. That would make him terrifying. But until we see proof of that, you can rest easy: Hamburglar is nothing to be feared.

TIME

How Women Will Fix the Economy

Janet Yellen and Christine Lagarde talk about what's next for the world economy

It’s not often that you get a chance to hear Federal Reserve chair Janet Yellen and IMF head Christine Lagarde interview each other. But I did Tuesday at the “Finance and Society” conference held at the International Monetary Fund in Washington, D.C. The event was unique in many ways; not only did it feature only women speakers, a rarity at financial events (I was a moderator), but it also went head on at one of the most contentious and important topics in economics right now: Why doesn’t the financial system do more to serve the real economy and society at large?

The event was the brainchild of Anat Admati, a Stanford professor and TIME 100 honoree whose book The Banker’s New Clothes is one of the sharpest takes on what’s still wrong with our banking system six years after the financial crisis. About a year ago, Admati told me that she wanted to get a bunch of smart women together to discuss why the global economy and financial system were still so screwed up, not so much because they were women, but because they happened to be the individuals who were actually questioning the conventional wisdom that finance was now in much better shape than before 2008, that the “too big to fail” problem had been solved, and that everyone could just go home and relax (see “The Myth of Financial Reform”). Women have frequently been whistle-blowers in finance; only now are they also among the most powerful people in the industry (aside from Yellen and Lagarde, the conference included many other top policymakers and thinkers), so it was a good idea to get everyone together to discuss the topic.

What the discussion made quite clear is that there’s a lot more that needs to be done to make the system safe. While Yellen said that banks have increased capital and decreased leverage, she also made it clear that “too big to fail” hasn’t been solved and that the Fed is worried about the risks that have been built up into the system because of the “unthinkable” period of low interest rates over the past six plus years, which was itself a response to the 2008 crisis. While she said the Fed believes low rates are still necessary right now to maintain employment and price stability, she also noted that Fed leaders were monitoring the deterioration in lending standards in various areas, like the market for leverage loans, and high-yield debt. As she put it, “equity market valuations are quite high,” and the divergence in monetary policy around the world (the Fed is pulling back from easy money while others, like the European Central Bank, are pouring more into markets) could lead to unexpected distortions and corrections. Yellen called out the “taper tantrum” of 2013 in particular, and noted that not just banks, but also insurance and pension funds might be caught out when rates eventually do rise (her opening speech can be read here).

For her part, Lagarde noted that there are still plenty of risks in the system — they have just migrated to different areas. Nonbanking entities that do finance (known as shadow banks) now hold more risks than major banks, which makes it harder for regulators to see where problems are. Liquidity is a bigger problem than bank solvency, and emerging markets are more likely to blow up than developed ones. Changing financial culture will be just as important to solving these problems as regulation, according to Lagarde, who advocates putting more women in positions of power within the industry, since they tend to be less oriented toward risk taking than men. Lagarde made a point she’s made before, which is that perhaps the financial crisis wouldn’t have happened if “Lehman Brothers had been Lehman Sisters.”

I don’t know about that, but I do think that Lagarde was spot on to disagree with the notion that “banking should be boring.” This CW is often thrown around to indicate the idea that banks should do “plain vanilla” lending rather than complex deals with sliced and diced securities. Fair enough. But as the IMF chief pointed out, “Why should lending to the real economy be boring?” The shifts that need to happen to bring finance back in service to the real economy are myriad and complex. They include changing tax policy that rewards short-term gains over longer-term ones, reforming corporate governance, increasing personal liability, changing the structure of banks themselves and making our system of shareholder capitalism more inclusive. But the original mission of banking — finding new innovations and funding them to create growth in society at large — is anything but boring. The regulatory and cultural journey back to that, which will no doubt take several more years, should be interesting too.

TIME Economy

1 in 4 U.S. Renters Use Half of Income to Pay for Housing

Average hourly wages have risen 2.1 percent, while rental prices have increased 3.7 percent in the past 12 months

(WASHINGTON)—More than one in four U.S. renters have to use at least half their family income to pay for housing and utilities.

That’s the finding of an analysis of Census data by Enterprise Community Partners, a nonprofit that helps finance affordable housing. The number of such households has jumped 26 percent to 11.25 million since 2007.

Since the end of 2010, rental prices have surged at nearly twice the pace of average hourly wages, according to data from the real estate firm Zillow and the Labor Department.

“It means making really difficult trade-offs,” said Angela Boyd, a vice president at Enterprise Community Partners. “There are daily financial dilemmas about making their rent or buying groceries.”

The crisis reflects one of the shortcomings of the recovery from the Great Recession: Income has failed to match rent increases. At the same time, construction has failed to keep pace with demand from renters. The recession pushed more millennials, former homeowners who faced foreclosure and low-wage workers into rental housing.

A result is that 2.3 million more families face pressures that leave them perilously close to homelessness. It’s a reality faced by Lisette Duarte, a 37-year-old living in a two-bedroom apartment with her family in northeast Los Angeles.

Duarte’s husband lost his job as an electrician more than three years ago. With both their son and daughter on the autistic spectrum and in need of care, he chose to stay at home while she worked a job requiring a 90-minute commute each way. The lost income forced them out of a three-bedroom house and eventually into a hotel, where vouchers over the course of five months helped them save for a security deposit for an apartment.

About a year ago, the family moved into a two-bedroom apartment in the Highland Park neighborhood where Duarte had grown up. Two-bedrooms in that gentrifying community rent for an average of about $1,600 a month, according to the online service Apartment List. The expense, along with utilities, consumes half of Duarte’s paycheck. The government defines housing costs in excess of 30 percent of income as burdensome.

The family relies on prepaid cellphones. They don’t dine out or go on vacations. Whatever extra income they have often goes for health care.

More than 30 percent of renters in California, Florida, New Jersey and New York state devote at least half their incomes to housing and utilities, according to the analysis. Other than Alaska, South Dakota and Wyoming, at least 20 percent of renters in every state face similarly high costs relative to income.

The analysis was developed for a “Make Room” awareness campaign sponsored by Enterprise Community Partners. As part of the campaign, pop stars such as Carly Rae Jepsen of “Call Me Maybe” fame, who sang for the Duartes, are performing concerts in the homes of financially distressed tenants.

Enterprise Community Partners’ analysis dovetails with findings from other organizations. The U.S. Department of Housing and Urban Development has estimated that 12 million renters and homeowners spend at least 50 percent of their income on housing.

And Harvard University’s Joint Center for Housing Studies found in a 2013 report that roughly 27 percent of renters were devoting half their incomes to rent. Those levels were “unimaginable just a decade ago,” the report said.

Average hourly wages have risen just 2.1 percent in the past 12 months, according to the Labor Department, while rental prices have climbed 3.7 percent, Zillow said last week.

Many renters lack the income to pay the cost of maintaining and operating these buildings, said Barry Zigas, director of housing policy at the Consumer Federation of America and a trustee at the nonprofit Mercy Housing.

Mercy Housing has a portfolio of 12,000 units for low-income people and senior citizens. It costs an average of roughly $500 a month to manage each unit, Zigas said. A monthly rent of $500 would mean that anyone working full time for a minimum wage would devote more than a third of his or her income to housing.

Either the tenants must fork over a greater share of their pay each year or landlords may let buildings fall into disrepair.

“Low-income renters are getting caught in a total squeeze play, as are the owners of the properties,” Zigas said.

The Great Recession caused waves of foreclosures and layoffs that pushed more Americans into renting. More than 36 percent of people now rent, compared with 31 percent before the recession began in late 2007. The increased demand has yet to be matched by construction and renovations.

In March, the National Low Income Housing Coalition reported a shortage of 7.1 million apartments for low-income renters. The shortages are most pronounced in Nevada, California, Arizona, Oregon, Florida, Colorado and Utah.

Construction firms are building apartment complexes at an annual pace of roughly 321,333 this year, according to the Commerce Department. The rising rental prices suggest that construction hasn’t kept pace with demand, according to economists.

For renters such as Duarte, the plan is that her husband can eventually return to work as their children reach adulthood, easing some of their financial pressures.

“I hope that we never encounter homelessness again,” she said.

TIME Nepal

These Are the 5 Facts That Explain Nepal’s Devastating Earthquake

Destroyed villages sit on mountain tops near the epicenter of Saturday's massive earthquake, in the Gorkha District of Nepal on April 29, 2015.
Wally Santana—AP Destroyed villages sit on mountain tops near the epicenter of the massive earthquake, in the Gorkha District of Nepal on April 29, 2015.

The 7.8 magnitude earthquake will hamper Nepal for years

The earthquake that ravaged Nepal, killing at least 5,000 people, has revealed the best and worst both in the Himalayan nation and those rushing to its aid. These 5 facts explain what’s shaping the domestic and international responses to the 7.8 magnitude earthquake, and where Nepal goes from here.

1. Quick to aid

Aid pledges are pouring in: $10 million from the US, $7.6 million from the UK, and $3.9 million from Australia, among others. But as welcome as this influx of funds is, the sad reality is that Nepal is ill-equipped to make full use of these resources. That is why countries are lining up to donate technical expertise via disaster response teams as well. China has sent a 62-member search-and-rescue team to help the recovery effort. Israel has sent 260 rescue experts in addition to a 200-person strong medical team, while Japan has sent another 70 people as part of a disaster relief team. The United Nations, in addition to releasing $15 million from its central emergency-response fund, is busy trying to coordinate international efforts to maximize their effectiveness.

(TIME, Quartz, Wall Street Journal)

2. A weak base

Nepal’s infrastructure was critically feeble even before disaster struck. With per capita GDP less than $700 a year, many Nepalese build their own houses without oversight from trained engineers. Nepal tried to institute a building code in 1994 following another earthquake that claimed the lives of 700 people, but it turned out to be essentially unenforceable. To make matters worse, a shortage of paved roads in the country means that assistance can’t reach remote regions where it’s needed most. Local authorities are simply overwhelmed, as is Nepal’s sole international airport in Kathmandu. Planes filled with blankets, food and medicine are idling on tarmacs because there are not enough terminals available.

(TIME, Washington Post, TIME)

3. Half a year’s output gone?

The economic cost of the earthquake is estimated to be anywhere between $1 billion to $10 billion, for a country with an annual GDP of approximately $20 billion. The economic impact will be lasting. Tourism is crucial to the Nepalese economy, accounting for about 8 percent of the total economy and employing more than a million people. Mount Everest, a dangerous destination under the best of circumstances, is the heart of that industry. The earthquake this past weekend triggered an avalanche that took the lives of at least 17 climbers, and as many as 200 people are still stranded on the mountain.

(Quartz, Deutsche Welle, Wall Street Journal, The Independent)

4. Internal political barriers

Nepal’s domestic politics are not helping. Nepal’s 1996-2006 civil war claimed the lives of at least 12,000 Nepalese, and the country’s political system has never really recovered. The government that stood before the quake was woefully ill-prepared to deal with a disaster of such scale. There have been no elections at the district, village or municipal level for nearly 20 years, and the committees in charge of local councils are not organized enough to deal with the difficult task of coordinating emergency assistance. Things are not much better at the national level, where Kathmandu has seen nine prime ministers in eight years.

(Washington Post, New York Times, TIME)

5. A competition for influence

Not all foreign aid is altruistic, and some countries never miss an opportunity to capitalize on tragedy. For years, Nepal has been an object of competition between India and China. For India, Nepal has been a useful buffer state between itself and China ever since Beijing gained control over Tibet. Relative to China, India and Nepal are much closer linguistically and culturally. Nepalese soldiers train in India, and New Delhi is a main weapons supplier to Nepal. For China, Nepal is an important component of its “New Silk Road” plan to link Asia with Europe, and offers a useful ally against Tibetan independence. China was already Nepal’s biggest foreign investor as of 2014. While in the immediate aftermath of the earthquake both Asian powers are providing significant assistance, it’s in the reconstruction phase where the true competition between the two will emerge. Pay particular attention to the race to build hydroelectric power plants: both Beijing and New Delhi have been positioning themselves to take advantage of Nepal’s 6,000 rivers to feed their respective energy needs.

(Quartz, BBC, TIME)

TIME brazil

Over 150 Injured in Teacher-Police Clashes in Brazil

The city's mayor called the scene a "war without precedent"

(RIO DE JANEIRO) — Police unleashed waves of rubber bullets, tear gas and stun grenades on striking teachers in a southern Brazilian city Wednesday, leaving over 150 people injured.

The police said their action was ignited after a few of the protesters attempted to gain access to a state congressional building where legislators voted to make cuts to teachers’ pension plans, but the authorities’ action was widely criticized as heavy handed.

Live television images showed police firing the non-lethal weapons into tightly packed clusters of striking teachers after some protesters tried to break through police lines around the Parana state congressional building. Water cannons were also used to knock demonstrators back.

A statement on the Curitiba municipal government’s website said at least 150 people were treated for injuries suffered in the melee. The state security secretariat said about 20 police officers were hurt. It was not yet clear how severe any of the injuries were in the action, which appeared to end by nightfall.

Curitiba mayor Gustavo Fruet called the scene a “war without precedent” in the city and labeled it a “tragedy foretold” that he blamed on the security forces, who are under the responsibility of the state government.

The statement on the municipal government’s website said the city’s unarmed municipal guard security officers had formed what was described as a security corridor that allowed the injured striking teachers to reach the city hall building to receive first aid.

The Parana state government, which controls the security forces that clashed with the teachers, said in a statement on its website that it “deeply regrets the acts of confrontation, aggression and vandalism caused this afternoon by protesters” not associated with the striking teachers.

It said masked protesters used stones, fireworks, sticks and iron rods to try to break through the police lines to invade the state congressional building and that they’re “directly responsible for the confrontation.”

The statement added that seven people had been arrested for attacking policemen.

TIME Race

What’s Next for Baltimore

Protesters march near City Hall in Baltimore, on April 29, 2015, demonstrating against the death of Freddie Gray.
John Taggart—EPA Protesters march near City Hall in Baltimore, on April 29, 2015, demonstrating against the death of Freddie Gray.

The city faces systemic issues involving patterns of segregation and police mistrust

A citywide curfew that went into effect late Tuesday until early Wednesday brought calm to Baltimore in the wake of riots that spotlighted deep tension between police and the community and drew parallels to the unrest of 1968. But now that the city is picking up the pieces, thanks in part to thousands of National Guardsmen and law enforcement officers who will enforce the curfew for several more nights, the question for Baltimore officials and residents is how to prevent all this from happening again.

Protesters in Baltimore marched for several hours ahead of Wednesday night’s curfew at 10 p.m., at which time lines of law enforcement officers and others in armored vehicles set out to keep the streets clear until 5 a.m. Elsewhere, in New York City and Washington, D.C., large groups of demonstrators amassed in shows of support for Baltimore and against police brutality.

Monday’s violence arose from rising tensions following the April 19 death of Freddie Gray, 25, who suffered a severe spinal injury after a confrontation with police a week earlier. Gray’s death became the latest instance of a black man’s death at the hands of a law enforcement officer reigniting the national conversation about race and police force, just as other incidents in South Carolina, Ferguson and New York City, among others, had done since last summer.

To avoid widespread protests and incidents like what occurred with Gray, experts say Baltimore will likely need to address several long-standing issues: the patterns of segregation that still exist throughout the city; the lack of opportunity in predominantly black neighborhoods; and the long-standing mistrust between police and minorities.

Baltimore has a history and pattern of racial segregation that began more than a century ago, and its shadows still linger. In 1910, the city adopted a policy mandating that black residents couldn’t live on a block where more than half the residents were white. While the policy was later struck down as unconstitutional, Baltimore remains starkly divided along similar racial lines that originate from those socioeconomic boundaries.

Gray was arrested in one of the poorest neighborhoods, Sandtown-Winchester. A fifth of its residents are unemployed and a third of its homes sit vacant. It has about twice as many liquor stores as the city average, according to a 2011 report by the Baltimore City Health Department, and 25% of juveniles living there were arrested between 2005 and 2009.

“It’s one of the most disinvested neighborhoods in our city,” says Lawrence Brown, a community activist and professor of health policy at Morgan State University.

Baltimore’s Inner Harbor, meanwhile, is bustling with shops and tourist attractions. Seema Iyer, a University of Baltimore economics professor, says the areas around the Inner Harbor grew by about 15% to 20% between 2000 and 2010. Still, it is predominantly white.

Mayor Stephanie Rawlings-Blake has focused on lowering the property tax rate to lure homeowners into the city while also implementing a tax on soda bottles to help fund reinvestment of public schools. It’s all part of her goal to bring 10,000 families new families into Baltimore by 2020.

“You have to have a broader tax base to have a sustainable city,” says Bill Cole, president of the Baltimore Development Corporation.

But the problem is that most people moving to the city aren’t looking to relocate into neighborhoods that could benefit the most from new businesses setting up or families moving in.

“There’s still gross underdevelopment where Mr. Gray is from,” says Jamal Bryant, pastor of the Empowerment Temple AME Church in Baltimore. “Rome isn’t built in a day, but we at least want to get to Venice to see some levels of progress in these urban centers.”

The city has instituted a program called Vacants to Value in which the city buys up properties, refurbishes them and attempts to resell them. There are 16,000 vacant home within Baltimore; city officials acknowledge they have demolished or rehabilitated 3,000 so far, but experts say many residents don’t want to live in those properties even if they’re refurbished.

“The unfortunate thing is there is no demand for them,” says Barbara Samuels, a lawyer for the ACLU of Maryland, who has worked on housing issues. Samuels says the city should provide more opportunities for people to leave those neighborhoods and “go to an area that’s not racially or economically segregated.”

Baltimore’s population, which steadily declined for decades, appears to have stabilized in recent years, settling in at around 600,000. But the poorest neighborhoods have remained stagnant, or even declined.

Those patterns of segregation and a divide between haves and have-nots have led to years of animosity between residents and police. Last year, the Baltimore Sun reported the city had paid out almost $6 million between 2011 and 2014 to residents, many of them black, that police officers had abused. The city has paid out $45 million for “rough rides” in police vans, like what many believe occurred with Gray, following two incidents in which those arrested were paralyzed.

Another problem may stem from the fact that only a quarter of Baltimore police actually live in the city, one of the lowest rates in the country, according to Census data analyzed by FiveThirtyEight. The rest live either in Baltimore County or out of the state, and that can have an unintended effect on how police do their jobs. Some local activists are pushing for the police department to recruit more officers from within the city, believing it could change how local residents interact with the officers patrolling their neighborhoods” on the police from out of town

“Police used to know everything on the block. The people who did hair, the people who had the best gossip,” says Cortley Witherspoon, a Baltimore religious leader and social activist. “But now, people are coming in with culture shock. We need to make sure officers come from the city that they are patrolling.”

City Council President Jack Young says he believes that each officer for the first two years on the job should reside in Baltimore. “They should live in the city,” he adds, simply.

One change that could potentially help Baltimore heal is if residents start to feel that police are being held accountable for their actions.

“You have to have justice where people who have committed these kinds of acts are fired,” says Brown, of Morgan State. “The city is settling time and time again instead of punishing these officers. There is a history of violence in this police department, but they’re never held accountable.”

The city’s first test on that count will come Friday, when police will turn over its investigation into Gray’s death to the state’s attorney general. A second test could come the next day, when a rally is expected to draw thousands of people back into the streets.

MONEY Economy

What’s Really Wrong With the Economy?

Striking trucker drivers and members of the International Brotherhood of Teamsters walk the picket line at the Port of Long Beach in California, United States April 27, 2015. Tractor-trailer drivers who haul freight from the ports of Los Angeles and Long Beach went on strike on Monday against four trucking companies, a Teamster union official said, in a move that could revive labor tension at the nation's busiest cargo hub. The port drivers accuse the trucking companies of wage theft by illegally misclassifying them as independent contractors, deducting truck-leasing charges and other expenses from their paychecks. The truckers are demanding to be reclassified as company employees with the right to union representation.
Bob Riha Jr.—Reuters Striking trucker drivers and members of the International Brotherhood of Teamsters walk the picket line at the Port of Long Beach in California.

The economy ran into trouble at the start of the year—again. Is this a sign of problems ahead, or was this just a case of the winter blahs?

For the second straight year, the nation’s economy hit a speed bump in the first quarter.

Gross domestic product grew at an annual rate of 0.2% in the first three months of 2015, according to the Commerce Department, after advancing 2.4% in 2014. Last year the economy actually contracted 2.1% in the first quarter before revving up later in the year.

Is the weak number just a blip that we’ve tended to see in the first three months of the year, or an ominous sign for the nine months ahead?

For now, economists are chalking some of this up to the bad weather this winter. Throw in labor strife in some of the country’s most important ports and the experts will tell you these are mainly short-term issues that will dissipate as time drags on.

“We do believe the negative effects from adverse winter weather and the disruptions due to west coast port strikes has resulted in a material negative impact on first quarter growth,” says Wells Fargo Securities senior economist Sam Bullard. “We’re having a repeat pattern of a soft first quarter. The expectation is that we’ll rebound.”

For the better part of the last 12 months, consumers have enjoyed a de facto tax cut in the form of dramatically lower gas prices, although prices have ticked up lately. Economists and policy makers had hoped that you would have taken that newfound cash and spent it on stuff. More spending results in higher wages, which have been lackluster for a while.

What did you actually do?

Well the personal saving rate has climbed the past three months from 4.4% to 5.8%, the highest in more that a couple of years. Spending, on the other hand, underwhelmed in the beginning of 2015, before rebounding in March.

The Conference Board’s consumer confidence index dropped 6% in April, well below expectations, and reached its lowest level since December. Another measure of consumer psychology, the University of Michigan consumer sentiment index, however, rose in April. Both gauges are much higher than one year ago.

The labor market has improved substantially, as 2014 was the best year for job growth since 1999.

Still, last month’s report showed that employers only added 126,000 positions in March and beefed up payrolls in January and February less than expected. Wages have only grown 2.1% compared to this time a year ago, barely above inflation.

Home prices rose slightly in February, after growing slightly in January, while existing home-sales jumped in March. Both increases, though, well outpace wage growth and inflation.

The economy has also undergone some recent unique struggles. Port truckers who service cargo in Los Angeles and Long Beach recently launched a strike. The labor dispute comes on the heels of a months-long strike by west coast longshoreman. Commercial building fell dramatically, per the Commerce Department, while residential construction increased slightly, thanks in large part to harsh winter conditions.

The sudden strengthening of the dollar hurt the bottom line of many U.S. multi-national corporations, and low oil prices reduced infrastructure spending and stymied employment in petroleum producing areas of the country.

One group paying especially close attention to the direction of the economy is the Federal Reserve, whose Federal Open Market Committee meets today to discuss interest rate policy.

In March, the central bank lowered its expectations for inflation and GDP growth. While most professional money folks think the Fed will raise rates in September, market events may intervene. Eric Stein, co-director of global income at Eaton Vance, warns against putting too much stock into GDP.

“It’s in the past,” says Stein. “We had a weak first quarter. So what? Who cares?” Rather than focus on the consequences of one-off issues like bad weather, investors should instead look toward the rest of the year. Stein is “cautiously optimistic.”

TIME Apple

What Apple’s Gargantuan Cash Giveaway Really Means

Mmmmmoney: Get a grip; it's just paper
KAREN BLEIER; AFP/Getty Images Mmmmmoney: Get a grip; it's just paper

$200 billion dollars—and it only means 1 thing

Apple’s announcement today that it would increase its dividend 10.6% and give out the biggest chunk of cash to shareholders in history—$200 billion of capital will be returned to investors through March 2017—means one thing and one thing only. The market has topped.

As I’ve written numerous times in recent months, share buybacks and dividend payments of this type don’t signal underlying economic health so much as they indicate a market riding on a financialized sugar high, one built on easy money, cash hording and tax dodging, which will eventually crash. Carl Icahn himself admitted as much to me when I interviewed him back in 2013, for a TIME cover story that looked at his quest to get Apple to give back $150 billion worth of cash to investors. “This market will break,” he said back then, even as he and many others were pushing for America’s richest firms to give investors more of the $4 trillion on their balance sheets (about half of which is held offshore). The only question now is when.

Indeed, one of the reasons that Icahn and others have been able to demand such huge payouts, and that companies like Apple have been able to deliver them, is that the Fed has poured $4 trillion into the market over the last few years, and kept interest rates at historic lows. That’s a crucial part of understanding this massive Apple payout. Despite having nearly 10% of corporate America’s liquid assets on hand, Apple has borrowed much of the money needed to do its capital return program over the last few years, at the lowest rates in corporate history, in order to avoid taking money out of offshore tax havens and paying the U.S. corporate tax rate on it. (CEO Tim Cook has said he would support repatriating some of the money at a lower rate as part of a wider deal on offshore holdings.)

Not only does issuing debt in order to hand over cash to investors save Apple billions, it almost always boosts its share price–buybacks necessarily do that, since they artificially decrease the amount of shares on the market, without actually changing the real value of the company via true strategic investments, like research and development, worker training, or anything else that might bolster the underlying prospects of the firm. More broadly, buyback wizardry underscores one of the great ironies of American business today–the country’s biggest, richest companies have more contact with investors and capital markets than ever before, yet they don’t actually need any capital.

Apple, one of the most admired firms in the world, now spends a large chunk of time thinking about how to create value via financial engineering. This is by no means just about Apple, which is pouring a lot of its wealth into noble pursuits such as green energy even in places like China and some limited factories in America.

But there is a larger uncomfortable truth here that many economists have begun to suspect, on a wide scale, has a lot to do with our permanently slow growth economy. One key part of the theory of “secular stagnation,” which is being bandied about by experts such Larry Summers, is that financial markets are no longer serving the real economy because they funnel so much money away from it. Others go further, believing that financialization itself is a core reason for slow growth and the decreasing competitiveness of U.S. economy in a global landscape.

The biggest economic conundrum of our age–why many companies aren’t investing the cash they have sitting on their balance into our economy in things like factories, workers and wages—turns out to have an easy answer. It’s because they are using it to bolster markets and enrich the 1% via capital return programs instead. A recent paper from the Roosevelt Institute shows that as borrowing to fund paybacks to investors has increased over the last few years has increased, investment into the real economy has decreased.

It’s a trend that has reached a fever pitch in the last decade or so, and particularly the last few years. From 2003 to 2013, the 454 firms in the S&P 500 index did $3.2 trillion worth of buybacks, representing 51% of their income, and another $2.3 trillion on dividend payments, which represented an additional 35% of income. By 2014, buybacks and dividends represented 95% of corporate income, and if the trend continues, they’ll reach over 100% in 2015. The bulk of these buybacks, which sped up following the low interest rate, easy money environment following the 2008 financial crisis, were done during market peaks, belying the notion that such purchases represent firms’ own belief in a rising share price. Many of them were done with borrowed funds (corporate margin debt is at record highs). The buybacks didn’t help make companies more competitive, but they did enrich executives, who took between 66% and 82% of their compensation in stock over the last seven years.

What this means on a practical level is that the claim from corporate leaders about how tight credit conditions, a lack of consumer demand and an uncertain regulatory environment has kept them from investing their cash horde back into the real economy is not the case. William Lazonick, a University of Massachusetts professor who has done extensive research on the topic of buybacks, says that the move from a “retain and reinvest” corporate model to a “downsize and distribute” one is in large part responsible for a “national economy characterized by income inequity, employment instability, and diminished innovative capability.” I couldn’t agree more.

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