Content provided by Paul Vaaler of the Carlson School

Happy Birthday, Hugedale! The Mall of America (MoA) is 25 years old this week –on Friday to be exact. Some of us remember back to 1986 when the Ghermezian brothers from Edmonton, Canada, flew into the Twin Cities and charmed Governor Rudy Perpich with plans for indoor shopping and amusements on an extraordinary scale and at an historic spot: the site of the old Metropolitan Stadium. Six years and 650 million dollars later, the MoA opened its doors. And since then, it’s hard to deny the MoA’s success: 40 million visitors annually –more than the combined populations of North Dakota, South Dakota, Iowa…and Canada; 520 stores in 5.6 million square feet of indoor space; an estimated $ billion in overall economic activity –direct sales, indirect supplies, derivative employment and other activity– for Minnesota. All of this at a time when so many other shopping malls in the US are in decline. I like this Guardian (of London) newspaper article on the contrast between MoA and other US malls: The MoA’s secret is really quite obvious. It’s a desirable destination for many things, including shopping: rides in the amusement park; movies at the cinema; restaurants for many palates and budgets; entertainment and spectacles that are planned (like the Minnesota Aquarium) and unplanned (like Black Lives Matter protests). Maybe just having great retailers isn’t enough for a mall to draw shoppers who can buy so many of the same things from online retailers like Amazon. What all bricks-and-mortar malls can do –and what the MoA does in spades– is offer a desirable destination for all sorts of needs and wants, including shopping. Enjoy the party, MoA. Then back to business.

The stock market is back in the news, this time for a halt in the Dow’s ascension. The apparent cause: bellicose words from President Trump about “fire and fury” for North Korea if it continues threatening the use of force against the US, including the use of nuclear weapons. Here is where you can learn more about stock-market war jitters: We may have gotten used to sharp, sometimes wild, occasionally delusional threats of attack and destruction from the various President Kims of the Peoples Democratic Republic of Korea. Kim Il Sung (in the 1970s), Kim Jong Il (in the 1990s), or Jong Un (in the 2010s) would say his piece followed by a measured, even-termpered response from the US President and or Secretary of State. But measured and even-tempered is not the norm at the White House (or Bedminster, New Jersey) or Foggy Bottom these days. So President Trump’s latest threats have markets worried: worried that both leaders are acting recklessly; worried that neither leader has thoughtful advisors to rein in their recklessness; worried that South Korea boasting 2% of world GDP, Japan with 6% of world GDP, and or China with 8% of world GDP could become targets for artillery and missiles. So, yes, the stock market is jittery with this war of words between leaders of North Korea and the US. Maybe both of them should play a little more golf.

It doesn’t sound very exciting but it’s actually important if you are a bank…or if you want to know what the interest rate is on a business loan, mortgage, consumer credit line, or just about anything else involving borrowing. The most common benchmark for these loans and an estimated $350 trillion in other financings is pegged to the London Inter-Bank Offered Rate or LIBOR. LIBOR has been around for ever. It’s the interest rate that banks in London charged each other to borrow short-term money. For many years, LIBOR even meant the London Inter-Bank Overnight Rate. Other banks around the world adopted LIBOR, too. And with that consensus interest rate standard, they could easily write lending and other financing agreements. Now, the UK regulator overseeing and the London banks setting LIBOR are ending that standard. Here is where you can learn details about why: The biggest reason for the end of LIBOR is scandal. Regulators discovered in the late 2000s that banks setting LIBOR were manipulating the rate to help themselves levaHpressure on interest rates, which made billions of dollars of derivative products they held lose value. So the banks started tamping down on LIBOR to make their derivative holdings look more valuable. Rate-rigging then and other times led to a loss of faith in the standard as a valid indicator of short-term interest rates. What will replace LIBOR? The Federal Reserve Bank of New York has proposed publishing this index based on the cost of borrowing cash secured by US Treasuries, but nothing is likely to come of that idea before 2018. Until then, the $350 trillion in financing deals will need a new standard. Nobody’s sure what should replace LIBOR. Maybe our good friend on the Morning Show could step in with daily interest rate quotes we could call “LeeBOR.”


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