Archive for April, 2009

  • Creditors Need to Take Some Risk
    , April 4th, 2009 at 11:28 pm

    Tyler Cowen has a good op-ed in the NYT pointing out a key factor in the bailouts—the true recipients are the creditors and that might cause future problems:

    What the banking system needs is creditors who monitor risk and cut their exposure when that risk is too high. Unlike regulators, creditors and counterparties know the details of a deal and have their own money on the line.
    But in both the bailouts and in the new proposals, the government is effectively neutralizing creditors as a force for financial safety. This suggests a scary possibility — that the next regulatory regime could end up even worse than the last.
    The more closely a financial institution is regulated, the more it will be assumed that its creditors enjoy federal protection. We may be creating a class of institutions whose borrowing is, in effect, guaranteed by the government.

  • Weekend Poll
    , April 3rd, 2009 at 8:00 pm


    Update: This question comes from the work of Daniel Kahneman and Amos Tversky, though I changed the amounts in order to experiment.
    By pure rules of expected return, people should to take the 50-50 bet for $3000. Although that’s what most folks said, there’s still a significant percentage that chose the guaranteed $1,000. Incidentally, I don’t blame anyone for taking the $1,000. It really comes down to each individual’s risk tolerance.

  • The Jobless Rate Continues to Grow
    , April 3rd, 2009 at 10:53 am

    I don’t have much to add about today’s awful jobs report. Let me say a few minor things. The official rate was reported as 8.5%. Technically, it was 8.543% which was only about 10,000 jobs away from 8.6%. At the present rate, that’s less than half-a-day’s job cuts. Over the last six months, the unemployment rate has ticked up 0.1% about every week.
    Over the last nine years, the unadjusted adult population has grown by 23.3 million. The civilian labor force has grown by just 11.6 million which means that less than half of the increase in population is participating in the jobs market. The number of employed has grown by just 4.2 million. So even the increase that is participating in the job market, only 36% have jobs (bear in mind, I’m talking about the net increase).

  • Cause Please Meet Effect
    , April 3rd, 2009 at 9:58 am

    February 23, 2004

    Greenspan says ARMs might be better deal

    May 16, 2007:

    Pimco hires Greenspan as consultant

    April 4, 2009

    PIMCO Distressed Mortgage Fund Down 34%

    (HT: Joe W.)

  • Mark-to-Market Is More Realistic
    , April 3rd, 2009 at 9:27 am

    In honor of yesterday’s decision from FASB, we at Crossing Wall Street would like to review our legacy assets which include; three unicorns, eight hobbits (non-union), a half dozen minotaurs, two mermaids, a couple of CHUDs, several tic-tacs, true love and a smurf.

  • Forbes and the Flat Tax
    , April 2nd, 2009 at 3:00 pm

    Now at his new perch at Reuters, Felix Salmon tweaks Steve Forbes for the news that Forbes magazine is cutting salaries by 10% for everything over $100,000:

    This is taxing the rich! It’s class warfare! Why should those employees earning a six-figure salary be singled out for pay cuts? If you cut their pay, don’t you know that you’re going to reduce their incentive to work hard, and also the incentive for lower-earning employees to aspire to their position? And these are the most productive members of the firm! You’re punishing success! You should be giving the higher-paid employees a pay rise, instead — that will surely boost corporate revenues!
    Come on Steve, walk the walk. If the rich can’t be treated equally with the poorer at Forbes, where is the hope for them in this world?

    I know he’s joking, but two things. Obviously, a cut in salary isn’t a tax. There’s a major difference between dealing with a private employer and government taxes. With the government, you have no choice.
    Secondly, what Forbes is doing isn’t running away from the flat tax — it’s exactly how his flat tax works. Forbes has called for a 17% flat tax on income only above a specific level (that’s changed over the years). You may not like his principles, but in this care Forbes is walking the walk.

  • What Caused Oil to Boom?
    , April 2nd, 2009 at 1:29 pm

    A few months ago, I criticized the absurd 60 Minutes story which blamed speculators for the rise in oil prices. I said the story was “wretched, incoherent and it engages in the worst form of scapegoating.”
    As is often the case, conspiracy theories sell. If you have a high tolerance for imbeciles, check out some of the comments when Seeking Alpha posted my piece.
    Now James Hamilton has looked into the behavior of the oil boom and bust and he comes to the conclusion that oil was impacted by…are you ready…supply and demand.

    But while the question of the possible contribution of speculators and the Fed is a very interesting one, it should not distract us from the broader fact: some degree of significant oil price appreciation during 2007-08 was an inevitable consequence of booming demand and stagnant production.

    (Via: Kedrosky.)

  • S&P 500 Total Return Index
    , April 2nd, 2009 at 1:13 pm

    Even if we include dividends, the S&P 500 has lost money over the last 11 years.
    image788.png
    And that’s not even adjusting for inflation. Ugh!

  • Daniel Gross on Dumb Money in the Newspaper Industry
    , April 2nd, 2009 at 8:30 am

    Daniel Gross points out that the failure of many newspapers isn’t always due to the decline of an industry, but to stupid moves from managers:

    In 2007, legendary real estate investor Sam Zell decided that a talent for good timing in flipping office buildings made him an expert on the ailing newspaper industry. In December 2007, he closed on the $8.2 billion purchase of the Tribune Co., which owned the Los Angeles Times, the Chicago Tribune, and the Chicago Cubs. Zell put down just 4 percent of the purchase price—$315 million—and borrowed much of the rest, leaving the company with a $13 billion debt burden. This deal was the purest expression of the “dumb money” mentality. The only hope Zell had of making a dent in the debt load and keeping current on the $800-million-plus annual interest tab was to sell off trophy properties like the Cubs, office buildings, and big-city newspapers—assets that themselves don’t throw off lots of income but whose purchase requires tons of cheap credit. Tribune Co. filed for bankruptcy Dec. 8, 2008.

  • If There’s No Media, Is It Still a Protest?
    , April 1st, 2009 at 11:42 am

    Here’s a truly post-modern photo I saw over at DealBreaker.
    takeapicture.jpg