October 25, 2009 - October 31, 2009 Archives
Oct 30 2009, 4:34PM
Health Care Bills And Deficits
It's easy to get cynical about the process of the health care bills. At this point, I'd say that conservative and liberal health care analysts both know the score. Everyone knows that this bill won't work as advertised: it will not cover as many people as promised, and it will run into budget shortfalls, if for no other reason than because Congress is not going to enact the cuts as written--they will get lobbied into repealing many of them. Doug Elmendorf has done everything but hire a skywriter to make it clear that he doesn't think that any of the various bills will actually be deficit neutral--while doing his job, which is to score what's written, not his best guess at what will happen.
Oct 30 2009, 4:10PM
The Death of Newspapers, Continued
At some point in the future, newspapers may disappear. But count me in the later rather than sooner camp. And I can't help but think that many newspaper-doomsayers are conflating hope with analysis. According to many of the digerati, newspapers and other printed matter that people pay for through clunky old distribution systems (the mail, kids on bicycles, vans) can never make money and are bound to fail, while publications distributed online for free are destined to rule the world. (Of course, I could be guilty of the same impulse. I have feet in both worlds and could no more choose between print and the Web than I could choose between my two children.) But I also think this might be a case of making too much of a few numbers and ignoring some important ones.
Oct 30 2009, 3:35PM
Samsung's Still Killing It
Back in July I noted how well Samsung was doing, despite the difficult economic environment. It's still tearing the cover off the ball. Its third-quarter profit tripled year-over-year. The quarter's net income of $3.1 billion is a new quarterly record for the company. And this all in the midst of one of the worst global recessions in recent memory.
Oct 30 2009, 2:47PM
Seriously, Stop Worrying About Hyperinflation
- A "strong dollar" doesn't mean a strong economy
- The government is going to have to pay for its debt, not inflate it away
- Some inflation is all right
- The gold standard won't solve any of the problems people think it will
Oct 30 2009, 1:49PM
The Stimulus Saved 650,000 Jobs? I'm Not Impressed.
Any minute now, recovery.gov will have a report that touts 650,000 jobs have been saved or created thus far by February's $787 billion stimulus package. In fact, the White House is already bragging about this on its blog. Am I the only person who's completely unimpressed?
Oct 30 2009, 12:53PM
Fallows On The Kindle-Nook eReader Battle
Over on his blog, The Atlantic's James Fallows has been doing a lot of writing recently about eReaders. Today, he compares and contrasts the Nook and Kindle. His analysis is both useful and interesting. I particularly liked his examination of the potential of each device's business model. Check it out here.
But that post is neither the beginning nor end of his eReader analyses. So be sure to check his blog periodically if you're interested in the subject.
Oct 30 2009, 12:17PM
Is Carbon Counting The New Calorie Counting?
Earlier this month, the New York Times published a story that discusses the research conducted by professors from NYU and Yale surrounding calorie labels posted in fast food restaurants in poor neighborhoods of New York City. The study concluded that customers actually "ordered slightly more calories than the typical customer had before the labeling law went into effect, in July 2008." As The Atlantic's Marion Nestle argues, perhaps this counterintuitive result is in part due to the fact that many people do not understand calories as a guideline for personal nutrition.
The Swedish National Food Administration took food labeling to the next level this year through their "environmentally effective food choices" program, which includes labels that list carbon dioxide emissions associated with the production of the food product. These labels are now cropping up on menus and some grocery store items. But when the average shopper comes across "Climate declared: .87 kg CO2 per kg of product" on an oatmeal box, is he or she going to understand what that means?
Oct 30 2009, 11:57AM
New York City Still Financial Capital
Bloomberg reports on some poll results I find a little surprising: global financial professionals still pick New York City as the best place for financial services in the near-term. I have hypothesized that the City would fall from its pedestal because Manhattan bankers would pay the price for violating the trust of foreign investors who lost millions on U.S. investments. Moreover, I believed that the massive regulatory constraints that Washington was likely to place on Wall Street could cause it to lose its competitive edge. This poll says otherwise.
Oct 30 2009, 11:15AM
A Bailout For Pensions?
This recession has taken a toll on most investments. Even though the stock market has improved recently, it's no where near its 2007 highs. Real estate prices are also still quite low. Given all of that, it probably comes as no surprise that many pension funds are in a lot of trouble. As you might have guessed, the government wants to help.
Oct 30 2009, 10:30AM
Why Companies Are Catching The Viral Video Virus
A set of stairs made into a gigantic piano. A recycling bin that awards points for each deposit. A bottomless trash can. What do these things have to do with Volkswagen?
Nothing except a small VW logo that appears after the video. It's The Fun Theory, a series of web videos from the German automaker showing how to make routine tasks more fun. I guess it's official: The viral video madness has truly gone viral.
Oct 30 2009, 10:09AM
Wages And Spending Disappoint
Anyone still celebrating yesterday's 3.5% U.S. GDP growth estimate for the third-quarter might want to take off their pointy party hats. Some new economic indicators out this morning aren't pretty. Wages are growing at a snail's pace, and consumer spending has fallen off a cliff. This data suggests that the economy might not be in nearly as good shape as the GDP number suggests.
Oct 29 2009, 6:04PM
Bair Criticizes New Regulatory Plan
Earlier, I finished analyzing the House's new plan to control systemic risk (.pdf). In doing so, I explained a few observations and worries. I didn't like how it assesses fees on healthy firms to pay for the resolution of those that fail. I also thought it gives a lot of power to the Treasury Secretary. Furthermore, I wondered why the Oversight Council seems to get so little responsibility. Apparently, I'm not the only one with these criticisms. Federal Deposit Insurance Corporation Chairwoman Sheila Bair agrees.
Oct 29 2009, 5:20PM
First-Time Home Buyer's Credit For Everyone?
It looks like the debate is heating up about whether to keep the $8,000 first-time home buyer's credit that expires at the end of November. I got press release e-mails today from Senate Banking Committee Chairman Christopher Dodd (D-CT) and Treasury Secretary Timothy Geithner both praising the credit's extension. I support the giving the credit a longer life, because I think that if the government is determined to continue to stimulate the economy, then shrinking the vast inventory of houses is a good way to help stabilize the real estate market. But oddly, a home buyer's credit extension might be opened up to far more than just first-time buyers.
Oct 29 2009, 4:15PM
Too Big To Fail, Part VIII: Some Final Words
Before (finally) setting aside the House's financial stability regulatory proposal (.pdf) that I've now spent seven eight posts analyzing, I'd like to provide some summarizing thoughts. (See the end of this post for links to the others.) Like with most drafts of legislation, there's some good, some bad and some ugly.
Oct 29 2009, 3:59PM
Why 3.5% GDP Growth Is Not Sustainable
Oct 29 2009, 3:56PM
GDP Growing Again: Are We Finally Okay?
So GDP grew at 3.5% in the third quarter? Are we out of the woods yet?
Maybe. But I wouldn't bet on it.
I think we have bottomed out; I don't foresee the economy starting to contract sharply again. But I'm not overimpressed by the growth figures, for a couple of reasons. First, we had a very sharp contraction, and as the traders like to say, even a dead cat will bounce if you drop it from a sufficiently large height. Second, there's the stimulus.
Oct 29 2009, 2:55PM
Should Health Care Tax Rich Income or Rich Plans?
Oct 29 2009, 2:34PM
Too Big To Fail, Part VII: Resolution Authority
I'm nearly done tackling the financial stability regulation (.pdf) proposed this week by the House Financial Services Committee. Earlier, I wrote about the securitization provision. Yesterday, I covered a variety of topics as well (links at the bottom of this post). This might be my favorite part: the resolution authority. I've been calling for a non-bank financial firm resolution authority for months. I'm shocked to report that Congress didn't do too badly with this plan. Let's dig in.
Oct 29 2009, 11:31AM
Too Big To Fail, Part VI: Securitization Is Dead
Today, I resume my analysis of the Financial Stability Improvement legislation draft (.pdf) released on Tuesday. I wrapped up the "Financial Stability Improvement Act of 2009" portion of this yesterday, after considering the new oversight council, how systemically risky firms will be chosen, what heightened regulation will look like, capital requirements and a future emergency provision. Today, I'll probably just tackle two more sections -- securitization and the resolution authority. Then I'll summarize.
The securitization provision is incredible. If enacted as is it may be the beginning of the end of securitization.
Oct 29 2009, 10:59AM
California Gets Closer to Passing Marijuana Law
Dude, that is some seriously good stuff. But seriously, legalizing pot is a good idea for California.Legislation to make California the first state to legalize marijuana for recreational use lit up a Capitol committee hearing Wednesday with three hours of lively but mellow debate.
No joint consensus was reached.
Oct 29 2009, 10:53AM
Is Amazon an Oligopolist?
Oct 29 2009, 9:48AM
GDP Up 3.5%, But Don't Be Too Optimistic
Oct 28 2009, 6:12PM
Too Big To Fail, Part V: More Bailouts?
I'll end the day with one last post on the new Financial Stability Improvement Act of 2009 proposal (.pdf). But this hardly marks the end of my toils with the doc. There are at least a few more issues it addresses that I intend to tackle tomorrow including the resolution authority and securitization. Up to now, I've covered the Council, identifying risky firms, heightened regulation and capital requirements. This one will be quick. I found one section a little peculiar. I understood the spirit of this legislation to ensure that the government wouldn't have to bail out financial firms anymore. One part of the draft appears to contradict this principle.
Oct 28 2009, 5:31PM
Too Big To Fail, Part IV: Capital Requirements
And my trudging through the new Financial Stability Improvement Act of 2009 draft (.pdf) continues. So far today, I've covered the Council, how it identifies risky firms and the kind of heightened regulatory requirements those firms can expect. Next up: capital requirements. Although it offers up few specific quantitative details (that will be left to the Federal Reserve), the document has a lot to say about this subject.
Oct 28 2009, 5:03PM
Obama's Pander to Seniors Is the Wrong Stimulus
The buying power of Social Security checks could increase with next year's deflation even without the extra $250. Moreover, to stimulate the consumer economy, you want to put money in the hands of the people most likely to spend their next marginal dollar, and unemployed people are most desperate for cash. Using that $14 billion on extending unemployed benefits (something Congress is debating) would almost certainly be best idea for stimulating the consumer economy as it emerges from the slog.
Oct 28 2009, 4:25PM
Too Big To Fail, Part III: Heightened Regulation
I'm still reading through the House's new Financial Stability Improvement Act of 2009 proposal (.pdf). So far, I've looked at the Council and how it will identify firms. Next, I think it's important to look at what new requirements will be imposed on firms found systemically relevant.
Oct 28 2009, 3:10PM
The 20-Year Decline of Newspapers, in a Graph
Oct 28 2009, 2:56PM
Too Big To Fail, Part II: Who Are The Firms?
As I mentioned in my last post, I am poring over the new proposal (.pdf) out of the House Financial Services Committee to create a new framework for financial stability. Most of that means addressing the too big to fail problem. In this post, I'll specifically analyze how the new regulatory Council will (explained in my previous post) will evaluate which firms are systemically risky.
Oct 28 2009, 2:35PM
The Best Health Care Reform is Impossible
I also believe the administration has done a poor job of addressing what I think is the biggest problem with the American health case system: It costs too much for what we get. We spend in total twice as much of our gross domestic product on health as most other major countries without getting much in return for the extra spending.Hey, that reminds me of something!
Oct 28 2009, 1:53PM
Markets in Everything: Bone Marrow
For reasons that aren't entirely clear, the 1984 National Organ Transplant Act forbids people to sell their bone marrow, as well as their kidneys, lungs, and so forth. By which I don't mean that the ban is merely stupid; I mean there's apparently some reason to believe that Congress simply did this as a mistake, adding bone marrow into the bill at the last moment without really thinking things through.
Oct 28 2009, 1:30PM
Consumer Financial Protection for Our Military
One of the most frequent things you hear in the debates over consumers' interactions with financial products is that we need better "financial literacy" to combat predatory lending practices. But what does it mean for a consumer to be financially literate? Is that enough? Especially at this historical moment, where financial expertise seems completely discredited, how do we go about educating consumers in financial literacy?
In 2005, The Department of Defense released their Report On Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents (opens pdf). In this report, they defined what they considered Predatory Lending and how best to go about combating it. What did they find?
Oct 28 2009, 12:35PM
Too Big To Fail, Part I: Oversight Council
The new 'too big to fail' legislation is too big to analyze in one post. It would have to be several thousand words. But it's also too important to ignore. I don't think any other regulatory rules enacted will be as important to prevent future financial crises. So I am going to focus most of the day today on reading through the 253-page draft (opens .pdf) released yesterday, titled the Financial Stability Improvement Act of 2009. I'll provide some highlights and analysis from the major sections in separate posts. I'll start with the proposed Financial Services Oversight Council.
Oct 28 2009, 12:30PM
The Excise Tax Wants to Make You Rich!
Oct 28 2009, 11:00AM
Let GMAC Fail
Oct 28 2009, 10:44AM
Can France Save Newspapers by Giving Them Away?
Oct 28 2009, 10:31AM
Why Don't Customers Leave Big Banks?
I bank in two places: Navy Federal Credit Union, and Citibank. NFCU is better in all ways except one: they don't have a branch in DC. That means that every time I want to make a deposit, I have to drive out to Virginia. So I tend to go there once every few months and put a bunch of cash in the bank for our regular or big expenses: car loan, wedding stuff, rent and utilities. But it is not a convenient place to do my every day banking.
Oct 27 2009, 5:30PM
Another Way AIG's Bailout Gave Taxpayers A Raw Deal
At this point, I don't think that many doubt that taxpayers are generally not on the better end of the deal when it comes to government bailouts. Still, an article today on Bloomberg accentuates this belief. It explains how the New York Federal Reserve gave banks that had credit default swaps (CDS) with AIG 100% par value to retire the derivatives, essentially ignoring the market value. This is disturbing for a few reasons.
Oct 27 2009, 5:10PM
What We Need to Know About the Crash
1) What did the banks' corporate boards know, when did they know it, and what did they divulge to their shareholders?
Oct 27 2009, 4:01PM
Washington Gets Serious About Tax Havens
The House Ways and Means Committee and Joint Committee on Taxation today introduced the Foreign Account Tax Compliance Act of 2009. The bill intends to close loopholes that allow foreign assets to be hidden from the Internal Revenue Service. The White House also supports the measure. This new legislation is coincidental to the post I wrote earlier about the IRS ramping up its staff to investigate tax evasion by wealthy individuals. It seems this must be 'make sure the rich pay their taxes' week in Washington. If it passes, this bill would make it more difficult to avoid paying taxes by using fancy offshore trust schemes.
Oct 27 2009, 3:07PM
SuperFreakonomics Author: "Your Job is to Attack Us."
Stephen Dubner, co-author of Freakonomics and the new SuperFreakonomics, was prodding the Monday night audience at the Washington Post Conference Center in Washington, DC. A forest of hands sprung from the seats. "Maybe I should rephrase," said co-author Steven Levitt, an economist. "How many people don't wash their hands." Two young men raised their arms in mock pride. Audience members alternatively chuckled and grimaced, but Levitt turned the joke on them.
"We know that a whole bunch of you are lying," he said. Studies show as little as 9 percent of men really, truly wash their hands. The audience laughed again, this time with a hint of discomfort (nine percent?). And in a moment, we had a microcosm of the night's three lessons: People lie. Conventional wisdom is asking for it. We should all laugh more about economics.
Oct 27 2009, 2:10PM
The WSJ's Odd Mobile Application Strategy
As Megan noted yesterday, the Wall Street Journal is one of the few newspapers that has gained print subscribers this year. That might be surprising, given that it's also one of the few newspapers that also charges for online content. But its latest strategy in demanding a subscription fee for its mobile news reader has me scratching my head. The full details are about as bizarre as the pricing scheme that Derek wrote about back in June by the Daily News of Rhode Island. I get that the Journal likes to get paid for content, but I don't understand why it's charging wsj.com subscribers even more to utilize the mobile app. And the details are even stranger.
Oct 27 2009, 12:55PM
The Public Option Survives! Would It Work?
The only way the public option saves money is by using fiat to slash reimbursement rates to some variation on Medicare reimbursements: Medicare +5%, +10%, or whatever rate they finally settle on. Otherwise, it's unlikely that the thing will even compete on an even basis with private insurers, who have a lot more experience managing billing, claims experience, and negotiations with providers.
Oct 27 2009, 12:20PM
SuperFreakonomics Authors Take Heat on Global Warming
The night's only question on climate change came from a young man at the Union of Concerned Scientists, a non-profit that wrote this long blog critique of SuperFreakonomics. He acknowledged the two sides' differences and asked the authors to help clear the air and work toward a common understanding of climate change. Dubner took the response, which crescendoed from a sound discussion of carbon dioxide basics to surprisingly defensive repudiation of the question.
Oct 27 2009, 11:50AM
New IRS Unit To Target The Rich
Yesterday, the Internal Revenue Service announced the creation of a new group that will spend its time chasing down wealthy taxpayers who attempt to shelter their earnings and assets from Uncle Sam's reach. Some people might think it's wrong to target high net worth individuals. They might argue that everyone should be treated equally by the IRS. I disagree. I think a new unit with this focus makes perfect sense.
Oct 27 2009, 11:20AM
Extend Jobless Benefits Now!
Oct 27 2009, 10:49AM
Obama's Big $3.4 Billion Stimulus Announcement
Today, President Obama will tout $3.4 billion in government grants for projects to improve the nation's infrastructure for electrical transmission. The initiative is a pretty good use of a portion of the $787 stimulus package passed back in February. I just wonder: what took them so long?
Oct 27 2009, 10:35AM
Health Care, Cost Control and Sneakiness
Single-payer national health insurance may be the best outcome, but we should get there after an honest debate, not through the back door. (my emphasis)I didn't like that sentence for two reasons. (1) The country has spent the last six months debating health care reform in town halls, Congress halls, cable shows, morning shows, blogospheres, and dining rooms. I just don't know what "honest debate" Hiatt holds his breath for; (2) What's wrong with a little sneaky public policy?
Oct 27 2009, 10:20AM
A Whole VAT of Stimulus
Over at Atlantic Business, our own Derek Thompson is channeling Bruce Bartlett to suggest that announcing a VAT now, to take effect in a year or so, might serve as a nifty alternative to a stimulus. After all, if a big tax hike is coming, you'd better stock up on pasta and paperweights.
This is not a crazy idea--I heard an economist who specializes in Japan suggest basically the same thing ten years ago to cure the "lost decade" (though his was actually a straight consumption tax that stepped up every year). As Bartlett told Ezra Klein:
Oct 26 2009, 5:30PM
Fred Hiatt Should Read the Health Care Bills
First he criticizes the Democrats for not trying to tax employer-provided insurance plans, but he doesn't mention the phrase excise tax. That is weird, because the excise tax in the Senate Finance bill is a tax on employer-provided insurance plans. Hiatt is permitted to think the tax is too small, or unlikely to survive a vote, or likely cause popular backlash. But he's not permitted to write as though it doesn't exist.
Oct 26 2009, 5:09PM
Detroit Defines A Bad Real Estate Market
You might wonder if there's an easy way to identify a really bad real estate market. Detroit can help. How about when you can't auction houses off with a starting bid of $500? Yep, that's pretty bad. We all know that things are truly awful in Detroit, but this answers the question: just how bad?
Oct 26 2009, 4:10PM
This is the End of the Newspaper Business
I think we're witnessing the end of the newspaper business, full stop, not the end of the newspaper business as we know it. The economics just aren't there. At some point, industries enter a death spiral: too few consumers raises their average costs, meaning they eventually have to pass price increases onto their customers. That drives more customers away. Rinse and repeat . . .
Oct 26 2009, 3:50PM
The Curious Case of Bruce Bartlett
Bruce Bartlett said that. The guy who spearheaded Ronald Reagan's tax cuts. The guy who wrote a book called The Supply-Side Solution in the 1980s. He said that, and what's more, he's been saying it for three years since he predicted the Republicans would walk the country toward economic ruin in the 2006 book Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. What is he saying now?
Oct 26 2009, 3:22PM
Is Insider Trading Okay?
Perhaps one of the most well-known and highly publicized white collar crimes is insider trading. It was the basis for Oliver Stone's famous movie Wall Street. It was even part of what sent America's favorite homemaking expert Martha Stewart to prison.* So it might come as a surprise that some would argue to make insider trading legal. Reasons for doing so were outlined this weekend in a Wall Street Journal op-ed by Donald J. Boudreaux, Professor of Economics at George Mason University. Some of his arguments are quite compelling. I still think, however, the potential harm outweighs the benefits he suggests.
Oct 26 2009, 2:33PM
Rethinking Rent Control
I confess, I'm a little surprised to see someone defending rent control in this day and age. There is almost no economist consensus so complete--left to right--as that rent control is "the best way to destroy a city's housing stock short of aerial bombardment".
Oct 26 2009, 1:40PM
Dodd: Freeze Credit Card Rates
I just got a press release from the Senate Banking Committee saying that Chairman Christopher Dodd (D-CT) is introducing legislation that would immediately freeze credit card rates on existing balances. Last spring, Congress passed credit card regulation, which prevents banks from arbitrarily raising interest rates. Those rules, however, aren't in full effect until July 2010. As a result, card companies have been using the time cushion provided to jack up interest rates. Such a reaction should be surprising to no one, but the practice of card companies changing rates during this transition period should be permitted.
Oct 26 2009, 1:10PM
The Swiss Army Knife Theory of Technology
I called this the Swiss Army Knife Theory of personal technology. I wrote:
Oct 26 2009, 12:20PM
What If Your Mortgage Disappears?
It's a borrower's dream: the bank can't find your mortgage paperwork, so it can't prove its ownership of your home. As a result, a judge orders that the debt the bank claims you owe is erased, and the house is yours. While such a scenario seems fantasy, it happened in a federal bankruptcy court this month. Gretchen Morgenson reported on this in the New York Times this weekend. While she speculates that this could mark a new paradigm where borrowers have the advantage over negligent banks, I hope this is more the case of an activist judge that won't be made common practice.
Oct 26 2009, 12:00PM
How Big Banks Keep Their Biggest Customers
Oct 26 2009, 10:57AM
What Happens to Health Care (and Obama) after Reform?
If the Massachusetts experience is any guide, health care reform will have broad public support once it's in place and the scare stories are proved false. The new health care system will be criticized; people will demand changes and improvements; but only a small minority will want reform reversed.I think it's more complicated than that.
Oct 26 2009, 10:48AM
Will The Stock Market's Rally Endure?
I've long been skeptical of the stock market. That's why, despite the pain that this recession caused the stock market in late 2008 and early 2009, I thought a deep market correction was long overdue. Now, of course, the Dow is soaring above 10,000 again, and life for stock brokers seems much better than it did back in March. But I don't buy it. According to an article on Bloomberg today, neither does economist Andrew Smithers, well-known for predicting the bear market in the early part of this decade.
Oct 26 2009, 9:45AM
The Search for Financial Villains Founders
Apparently, the trial of Bear Stearns hedge fund managers Ralph Cioffi and Michael Tannin is not going so well. These are the fellows with the incriminating email trails, and the apparent habit of taking their money out of the funds as they started to go bad. Only it turns out that this isn't quite the whole story:
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