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

BELGIUM-LIBERIA-AVIATION-HEALTH-EBOLA
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.

TIME Economy

Could a 40-Year-Old Bank Collapse Have Saved the U.S. Economy?

Michele Sindona In His Office
Michele Sindona in his office in 1970, before Franklin National Bank collapsed Mondador / Getty Images

Forty years ago, the U.S. did a good job of overseeing a failed bank. Then came Lehman Brothers

When Franklin National Bank collapsed 40 years ago on Oct. 8, 1974, it was more of a beginning than an end. A lurid tale of the bank’s downfall emerged over the next decade, involving mafia connections, ambitious Wall Street wannabes à la Jordan Belfort and a principal investor with a suspicious bullet wound in his leg.

More importantly, the bank’s demise was the first notable instance in which federal regulators helped a major bank wind down its operations in order to prevent global economic damage.

Franklin began as a humble Long Island bank with big-league aspirations. In the 1960s, the bank made questionable financial decisions to expand its operations and bum-rush the Manhattan banking scene. Franklin’s overzealous bankers bought a luxurious, too-large office on Park Avenue and sold a controlling stake in the firm to a shady Milan-based international financier, Michele Sindona.

The Sindona story reads like an American Hustle-style, stranger-than-fiction tale. In 1974, high-risk loans, ill-advised foreign currency transactions, and swings in foreign exchange rates caused Franklin to hemorrhage cash. The company lost $63 million in the first five months of 1974, more than any other bank in American history until that point. Not long after, the U.S. charged Sindona with illegally transferring $40 million from banks he controlled in Italy to buy Franklin National, and then siphoning $15 million from it. In August of 1979, just before his trial was about to begin, Sindona — who had ties to the Vatican and likely the Mafia — disappeared under mysterious circumstances; his family and lawyers got letters that “supposedly proved that he had been abducted by Italian leftist radicals,” according to TIME’s coverage of the episode. When he finally emerged after nearly three months — in a payphone booth near Times Square — he had what he said was a bullet wound in his leg. (Sindona claimed he was kidnapped by Italian terrorists but his defense later admitted it was a hoax, and Italian magistrates said that a secret Masonic lodge helped Sindona fake his own kidnapping.) He was sentenced to serve a 25-year prison sentence and died in prison by cyanide poisoning in 1986.

But the bigger story about Franklin National was the boring one. The bank, which was the 20th-largest in the U.S., was the first major financial institution whose wind-down was orchestrated by federal regulators. In 1974, the biggest questions federal authorities faced were how much it would damage the global economy if Franklin collapsed, and whether regulators should get involved.

Sound familiar?

It should: A similar crisis occurred in 2008 when the collapse of the largest American financial institutions seriously damaged the global economy. Much like Lehman Brothers, JPMorgan Chase and Goldman Sachs, Franklin National was deeply enmeshed in the global economy. In both 1974 and 2008, federal regulators were in a position to take decisive action, but they responded in very different ways.

In 1974, as Franklin began to collapse, the Federal Reserve’s strategy was to lend it money in order to buy time for a bigger strategy, according to Joan Spero, author of The Failure of the Franklin National Bank: Challenge to the International. The Fed loaned Franklin a total of $1.75 billion, the largest bailout ever offered to a member bank at the time. Later, the Federal Deposit Insurance Corporation stepped in to help arrange a bank takeover. The FDIC set up negotiations with 16 banks, and a firm called European-American ultimately purchased Franklin for $125 million. The bottom line is that regulators helped to avoid an economic hit by lending Franklin money, and then smoothly transitioning the bank into a subsidiary of a functional institution.

“The entire financial world,” Arthur Burns, the chairman of the Federal Reserve Board, told TIME shortly after, “can breathe more easily, not only in this country but abroad.”

A very different scenario emerged in September 2008. The United States was on the cusp of the worst recession since the 1930s, and Lehman Brothers, the nation’s fourth-biggest bank, was in trouble. Granted, the problem was much more serious in 2008 than in 1974, and the stakes were higher — as would have been the size of the required bailout. The Fed ultimately allowed Lehman brothers to go bankrupt, and the economy seized up. (A sale to Barclays did look possible at the last minute, but it didn’t work out.) A litany of critics have suggested that the Fed should have orchestrated a Franklin National Bank-like wind-down for Lehman, and thereby could have prevented an international catastrophe.

“For the equilibrium of the world financial system, this was a genuine error,” Christine Lagarde, France’s finance minister at the time, said in the days after Lehman’s bankruptcy, reports the New York Times. Indeed, what followed in the U.S. was the worst recession since the Great Depression.

Still, federal regulators tend to come under a lot of fire when things go wrong — no matter what they do, which is kind of the point. Even in 1974, TIME criticized federal authorities for not being proactive enough with Franklin National Bank, despite its orderly purchase by European-American. In its story published in October of that year, TIME said federal authorities should have scrutinized Franklin and others more closely:

Faced with the failure of more than 50 federally insured banks in the past decade, the FDIC and other regulatory agencies need to keep a much closer watch not only on the roughly 150 banks on the FDIC’S “problem” list but also on virtually every bank in the nation. That way ailing banks will stand a better chance of being helped long before they reach a Franklin finale.

In other words, TIME’s message to federal authorities was: Be vigilant and act quickly. It’s a mantra we could learn something from today.

TIME

How Bitcoin Could Save Journalism and the Arts

The Innovators

Walter Isaacson is the author of The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution, out this week.

Micropayment systems have the potential to reward creativity and exceptional content—on a realistic scale

The rise of Bitcoin, the digital cryptocurrency, has resurrected the hope of facilitating easy micropayments for content online. “Using Bitcoin micropayments to allow for payment of a penny or a few cents to read articles on websites enables reasonable compensation of authors without depending totally on the advertising model,” writes Sandy Ressler in Bitcoin Magazine.

This could lead to a whole new era of creativity, just like the economy that was launched 400 years ago by the Statute of Anne, which gave people who wrote books, plays or songs the right to make a royalty when they were copied. An easy micropayment system would permit today’s content creators, from major media companies to basement bloggers, to be able to sell digital copies of their articles, songs, games, and art by the piece. In addition to allowing them to pay the rent, it would have the worthy benefit of encouraging people to produce content valued by users rather than merely seek to aggregate eyeballs for advertisers.

This is something I advocated in a 2009 cover story for Time about ways to save journalism. “The key to attracting online revenue, I think, is to come up with an iTunes-easy method of micropayment,” I wrote. “We need something like digital coins or an E-ZPass digital wallet–a one-click system with a really simple interface that will permit impulse purchases of a newspaper, magazine, article, blog or video for a penny, nickel, dime or whatever the creator chooses to charge.”

TIME, February 16, 2009

That was not technically feasible back then. But Bitcoin has now spawned services such as ChangeTip, BitWall, BitPay and Coinbase that enable small payments to be made simply, with minimal mental friction or transaction costs. Unlike clunky PayPal, impulse purchases can be made without a pause or leaving a trace.

When reporting my new book, The Innovators, I discovered that most pioneers of the Web believed in enabling micropayments. In the mid-1960s, Ted Nelson coined the term hypertext and envisioned a web with two-way links, which would require the approval of the person whose page was being linked to.

Had Nelson’s system prevailed, it would have been possible for small payments to accrue to those who produced the content. The entire business of journalism and blogging would have turned out differently. Instead the Web became a realm where aggregators could make more money than content producers.

Tim Berners-Lee, the English computer engineer who created the protocols of the Web in the early 1990s, considered including some form of rights management and payments. But he realized that would have required central coordination and made it hard for the Web to spread wildly. So he rejected the idea.

As the Web was taking off in 1994, I was the editor of new media for Time Inc. Initially we were paid by the dial-up online services, such as AOL and Compuserve, to supply content, market their services, and moderate bulletin boards that built up communities of members.

When the open Internet became an alternative to these proprietary online services, it seemed to offer an opportunity to take control of our own destiny and subscribers. Initially we planned to charge a small fee or subscription, but ad agencies were so enthralled by the new medium that they flocked to buy the banner ads we had developed for our sites. Thus we decided to make our content free and build audiences for advertisers.

It turned out not to be a sustainable business model. It was also not healthy; it encouraged clickbait rather than stories that were so valuable that readers would pay for them. Consumers were conditioned to believe that content should be free. It took two decades to put that genie back in the bottle.

In the late 1990s, Berners-Lee tried to create new Web protocols that could embed on a page the information needed to handle a small payment, which would allow electronic wallet services to be created by banks or entrepreneurs. It was never implemented, partly because of the complexity of banking regulations. He revived the effort in 2013. “We are looking at micropayment protocols again,” he said. “The ability to pay for a good article or song could support more people who write things or make music.”

These micropayment protocols still have not been written. But Bitcoin may be making that unnecessary. One of the greatest advocates of using Bitcoin for micropayments is the venture capitalist Marc Andreessen, who as a student at the University of Illinois in 1993 created the first popular Web browser, Mosaic.

Originally, Andreessen had hoped to put a digital currency into his browser. “When we started, the first thing we tried to do was enable small payments to people who posted content,” he explained. “But we didn’t have the resources to implement that. The credit card systems and banking system made it impossible. It was so painful to deal with those guys. It was cosmically painful.”

Now Andreessen has become a major investor in companies that are creating Bitcoin transaction systems. “If I had a time machine and could go back to 1993, one thing I’d do for sure would be to build in Bitcoin or some similar form of cryptocurrency.”

Walter Isaacson, a former managing editor of Time, is the author of The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution, out this week.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME ebola

Liberians in Dallas Convey Hope Back Home

Liberia Races To Expand Ebola Treatment Facilities, As U.S. Troops Arrive
A Liberian Ministry of Health worker, dressed in an anti-contamination suit, speaks to a child in a holding center for suspected Ebola patients at Redemption Hospital on Oct. 3, 2014 in Monrovia, Liberia. John Moore—Getty Images

The disease and its aftershocks have been ravaging their homelands for months; now the U.S. is joining the fight

The first diagnosed case of Ebola in the U.S., discovered nearly a week ago at a hospital in north Dallas, seized the country, as public health officials rushed to contain both the virus and the fear it inevitably caused. But Ebola has been tearing through the lives of West Africans in Dallas for months, killing loved ones back in Africa and putting a strain on bank accounts here in Texas.

Now that the virus has reached America’s shores there’s a grim sort of hope that help may finally be on the way.

“People are not happy that the disease has made it to America,” Alben Tarty, spokesperson for the Liberian Community Association of Dallas-Fort Worth, told TIME Saturday. “But with the attention it has garnered they think, ‘Ok, this is a bad thing, but maybe America can now appreciate what we’re going through.”

Jenny Dakinah lost her half brother and almost his entire household to Ebola (his wife, niece, mother-in-law and teenage son all died; miraculously, her now 10-month-old nephew survived). She’s mailing canned food to her family still in Liberia.

“You don’t know who you come in contact with when you buy food,” she said. Sending food and money to help her family survive the sputtering economy is straining her resources. “It’s getting harder and harder.”

Liberia is one of the most remittance-dependent countries on earth. Money sent to relatives from Liberians living in the U.S. accounted for 20% of the West African country’s economy in 2012 (the second highest percentage in Africa, after Lesotho), according to a 2014 World Bank report. As Ebola takes lives—both directly and by overwhelming the healthcare infrastructure so that even less lethal diseases become more deadly—it is also gutting economies where it strikes.

In Liberia, the hardest-hit country in this outbreak, the economy is buckling as society and its markets hunker down. Schools and offices close as a precaution. People interact less, leave the house less, and thus buy less. Without revenue many businesses that do stay open eventually shut down and lay off workers. The Liberian economy has been clawing its way back to health since the end of the country’s civil war in 2003 but the World Bank projects that if the virus isn’t substantially contained by next year its growth rate will plummet—to negative 4.9%.

“The financial implications of this are huge. Tremendous,” said James Kollie, the pastor of Better Life Church, a largely Liberian congregation in the Dallas area. “Millions of dollars have been lost in this outbreak. As I’m talking to you, more. Billions of dollars could be lost.” Kollie has family and a business back in Liberia. “Right now everything has been affected. I’m not making an income right now. Everything has come to a standstill.”

Albert Travell has lost seven nieces and nephews to Ebola. With the country now on lockdown he sends what he can to help his brother and sister get by. “I helped them with money just yesterday for them to buy food because they’re not working.” He sends $100 at a time. Sometimes $125. “The little money I had, I had to send to them”

Amid this dire situation, news that up to 4,000 U.S. troops will head to West Africa to help fight back against the disease has been a welcome ray of hope.

“We were just Africa, just hurting every once in awhile, but now that it’s affecting America, every hour it’s on the news,” Tarty said. “America is the most powerful country in the world with robust healthcare systems and is now paying attention to the virus and will do something about it. That’s the feeling people have right now.”

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