Category: Economics & Business

Perspective

“There are some things that must be entrusted to government and some things that must be entrusted to private enterprise.”

“My estimate is that the financial sector takes $560 billion a year out of society. Banks, money managers, insurance companies, certainly annuity providers. They’re all subtracting value from the economy.”

Bill Moyers talks with John Bogle, the man who created The Vanguard Group in 1974. Vanguard is one of the two largest mutual fund organizations in the world. Bogle also developed the index mutual fund. In other words, he’s a foremost capitalist. Fortune named him one of the investment industry’s four “Giants of the 20th Century.”

You can view the video or read the transcript at Bill Moyers Journal.

Bogle has an article in Dædalus — Democracy in corporate America.

“These excesses in executive compensation, and the directly related machinations of financial statements, reflected the erosion in the conduct and values of our business leaders during the recent era, when something went wrong with American capitalism.”

Interesting and informative stuff.

How deep a housing slump?

Typically the news reports for the housing slump report comparisons between this year and last. But, as Paul Krugman points out, the drop was already underway a year ago. The more meaningful comparison is with two years ago.

According to Census Bureau, via Krugman, new home sales are off 21% from August of 2006 to August of 2007.

But they are off 38% from August of 2005 to August of 2007.

NewMexiKen has always wondered about this annual comparison business. Car sales are reported the same way. I’ve always thought that the way to properly report these kinds of statistics would be to say sales are up or down against the preceding five-year average.

Is this an open book test?

A week ago NewMexiKen posted some of the mock exam in American Economic History at that football school, Cal Berkeley.

Here’s a link to Professor DeLong’s actual midterm if you’d like to take the test.

If you’re too rushed to click, try these one-paragraph discussions:

2. Were there important economic causes of the Civil War? If there were, what were they?

3. Why was America a relatively equal country (for white guys) until after the Civil War? Why did it then become an unequal country in the next half-century?

Greed is good

Interesting stuff today too from Paul Krugman writing about Countrywide Financial and its CEO. The column includes this:

But Countrywide made more questionable loans than anyone else — and its postbubble behavior does stand out. As Ms. Morgenson reported in yesterday’s Times, Countrywide seems peculiarly unwilling to work out deals that might let borrowers hold on to their homes — even when such a deal, by avoiding the costs of foreclosure, would actually work to the benefit of both sides.

Why block mutually beneficial deals? As the article points out, Countrywide can make money from the fees it charges on foreclosures, while the losses from mortgages that could have been saved, but weren’t, are borne by others.

Gordon Gekko, father of many children.

Money and Other Subjects

NewMexiKen has long been a fan of Andrew Tobias — reading his early, popular books and using for several years the financial software he developed, Managing Your Money.

Today Tobias writes briefly about the Tough Years Ahead, starting with:

“And it could be a decade or two before homes and condos in some places return to their peak prices (at least in “real” terms, adjusted for inflation).”

Interesting stuff, whether one agrees with it all or not.

What does the weakening of the dollar mean for me?

The U.S. dollar fell to a new low against the euro on Tuesday, thanks to more bad news about home sales. One American greenback is now worth about 0.71 euros, or 0.49 British pounds. Five years ago, the dollar and the euro were about the same in value, which means that a Roman holiday has gotten significantly more expensive. But continental vacations aside, how does the weak dollar affect the average Joe?

Slate Magazine

Canada Is Giddy About the Loonie

After 31 years of playing second fiddle, the Canadian loonie, so-called because of the bird on the dollar coin, overtook the U.S. greenback this week. A nation that has long been the butt of jokes from its neighbor to the south puffed out its chest and grinned.

At the start of the year, one U.S. dollar bought 1.166 Canadian dollars. Late Friday in New York, it bought just 1.0008 — a slide of 14%. On Thursday, the two currencies hit parity for the first time since 1976. In January of 2002, the U.S. currency touched its recent high against the loonie, with one dollar buying 1.6143 Canadian dollars.

The Wall Street Journal

Mexico will be building a wall along its northern border in a few years if the dollar continues its slide.

Congratulations

That Apple stock you bought on May 1 (not even five months ago) for $10,000. It’s worth about $14,400 today. (The ten-grand would be worth $44,600 if you bought Apple stock with it when NewMexiKen first mentioned it in January 2005, when the iPod Shuffle and the Mac Mini were introduced.)

Oh, and the Google IPO shares you got for $10,000 three years ago August. Those 117.65 shares are valued at $65,882 at the moment.

The Puppet Master

From a fascinating column on Apple’s Steve Jobs by Robert X. Cringley (worth reading in its full version) but here’s an excerpt on the iPhone pricing:

This week’s iPhone pricing story, in which Apple punished its most loyal users by dropping the price of an 8-gig iPhone from $599 to $399 less than three months after the product’s introduction, is classic Steve Jobs. It wasn’t an accident. It wasn’t a thoughtless mistake. It was a calculated and tightly scripted exercise in marketing and ego gratification. In the mind of Steve Jobs the entire incident had no downside, none at all, which is yet another reason why he is not like you or me.

Let’s deconstruct the incident. Apple announced a variety of new and kinda-new iPods dominated by the iPod Touch (iPhone minus the phone) and an iPod Nano with video (great for watching miniseries). At the very end of the presentation, Jobs announced the iPhone price cut. Why did he wait until the very end? Because he knew the news would be disruptive and might have obscured his presentation of the new products. He KNEW there was going to be controversy. So much for the “Steve is simply out of touch with the world” theory.

So why did he do it? Why did he cut the price? I have no inside information here, but it seems pretty obvious to me: Apple introduced the iPhone at $599 to milk the early adopters and somewhat limit demand then dropped the price to $399 (the REAL price) to stimulate demand now that the product is a critical success and relatively bug-free. At least 500,000 iPhones went out at the old price, which means Apple made $100 million in extra profit.

Had nobody complained, Apple would have left it at that. But Jobs expected complaints and had an answer waiting — the $100 Apple store credit. This was no knee-jerk reaction, either. It was already there just waiting if needed. Apple keeps an undeserved $50 million and customers get $50 million back. Or do they? Some customers will never use their store credit. Those who do use it will nearly all buy something that costs more than $100. And, most importantly, those who bought their iPhones at an AT&T store will have to make what might be their first of many visits to an Apple Store. That is alone worth the $50 per customer this escapade will eventually cost Apple, taking into account unused credits and Apple Store wholesale costs.

So Apple still comes out $75 million ahead, which is important to Steve Jobs.

Comcast Rage

Former Albuquerque Mayor Jim Baca is unhappy with the ugliest utility.

Have you received your Comcast Cable bill this month? That little monopoly has raised rates again on just about everything. …

Oh, and if you want to talk to a live person at Comcast they now charge you for it. So if they provide bad service and you need help, they now charge for it.

NewMexiKen pays Comcast $65 a month JUST for internet service. There’s a $15 penalty because I don’t have television service — but if I wanted to add television I’m not eligible for any discounts because I’m an existing customer. That’s Comcast having their cake and eating it too I’d say.

Baca had a good piece the other day on the likely demise of Albuquerque’s afternoon newspaper The Tribune — Grab the Funnies. The surviving newspaper, The Albuquerque Journal, has the world’s most unappealing website. And, to my taste, the dead-tree version is about as equally ugly.

The Crash

NewMexiKen doesn’t have enough money invested in stocks to jump out of a building like those fat cats who lost their shirt during the 1929 crash.

But today I may go jump off a step ladder.

(On the other hand Apple was up 6% this morning.)

Idle thoughts

You’d need a good hat, lots of sunscreen and a long shower after, but would that we could take a long summer afternoon’s float in an inner tube down the Rio Grande. I swear, the Rio is more restricted here than it is downstream where it’s the international border.

All the Hechts, May Company and Foleys stores are Macy’s now. I don’t know about you, but here it seems that the combined store has noticeably less than either had before the merger. What a sad place.

Speaking of retail, NewMexiKen was in Boulder, Colorado, a few weeks ago. The Pearl Street Mall is a great urban scene, but I laughed and laughed at the term “mall.” It couldn’t be a real mall. Where’s the Spencers Gifts? Where’s the Things Remembered?

Atlantic wreck yields huge coin haul

Half a million silver coins and hundreds of gold coins have been recovered from an Atlantic colonial-era shipwreck in the largest such find of its kind, Odyssey Marine Exploration Inc. said on Friday.

The artifacts, which include 17 tonnes of silver coins and worked gold, were legally imported to the United States, the publicly listed U.S. company said in a statement.

The artifacts are being examined and cared for by conservationists at an undisclosed location, the statement said, adding that the first 6,000 silver coins conserved are in remarkable condition.

“The gold coins are almost all dazzling mint state specimens,” Odyssey co-founder Greg Stemm said.

Reuters.co.uk

Odyssey Marine’s stock was up over 80% today to close at $8.32. I don’t have any OMR because I’m stupid, but I know someone who does.

Why we can’t leave Iraq

According to this report in the Christian Science Monitor, “The reason Iraq needs to pass a new oil law, President Bush has said, is to ‘share oil revenues among all of Iraq’s citizens’ – Sunnis, Shiites, and Kurds – and to help unify the country.”

The Monitor goes on to report, however: “Fueling new resistance to the oil benchmark are reports that the draft law in fact says little about sharing oil revenues among Iraqi groups and a lot about setting up a framework for investment that may be disadvantageous to Iraqis over the long term.”

That investment would be by oil companies. You know, Exxon/Mobil, Chevron, Shell and BP, what’s left of the seven sisters (Gulf and Texaco were the other two). Iraq is thought to have the world’s second largest oil reserves (after Saudi Arabia), some 110 gigabarrels.

Until about a generation ago most of the world’s oil was controlled by the oil companies. Today more than 75% is controlled by governments — and the oil companies have been trying to take that control back.

This is why we invaded Iraq; and it’s why we can’t leave until the Iraqi oil law is passed and control is securely in the hands of those Iraqis who will follow the law.

The rest is smoke and mirrors.

Stuff

The “Forever” stamp is a bad deal:

In December, President Bush signed the Postal Accountability and Enhancement Act, which ensures that future price increases will be kept below an inflation-based ceiling. In other words, postage hikes will never surpass inflation—and the forever stamp will never become a good investment.

Slate Magazine

Which seems obvious enough, but the Slate story tells of some bonehead who bought $8,000 worth of things.

Red light cameras are evil:

In Fayetteville, North Carolina a red light camera struck a woman, sending her to the hospital with critical injuries. Danielle Christina Polumbo, 20, is accused of driving drunk on Bragg Boulevard at 1:40am today. According to WRAL-TV, Polumbo swerved into a red light camera pole, sending the heavy device down onto the vehicle’s roof. Emily Elizabeth May, 24, suffered critical injuries from the camera hit and was rushed to Cape Fear Valley Hospital for treatment.

TheNewspaper

Driving drunk is, of course, the real evil.

Neither a borrower nor a lender be

When you read “The Merchant of Venice” was it Shylock you admired? Here’s your chance to invest your money at a little higher interest rate.

Who can borrow?

Any adult US resident with credit score of 520 or higher can create a listing for a loan on Prosper. After passing identity and fraud checks, borrowers can request unsecured loans from $1,000 to $25,000 at rates they select.

Who can lend?

Any adult US resident can lend money to others on Prosper. After passing Prosper’s identity and fraud checks, lenders offer money to borrowers at rates they select.

Is it guaranteed?

All of Prosper’s loans are 3-year unsecured loans. You can protect yourself from defaults by bidding as little as $50 on each loan and spreading your risk.

Prosper, the online marketplace for people-to-people lending.