Some items of interest today:

• CEOs earn 343 times more than typical workers (CNN/Money)
• Flash Crash To The Upside In Gold? (Adventures in Capitalism)
• Key to job growth, equality is boosting tradable sector of economy (Washington Post)
• 10 Doomsday trends America can’t survive (Marketwatch)
• The Much Abused Spirit of Contrarianism (Jesse’s Café Américain)
• Capitalism is failing the middle class (Reuters)
• Auto Rate Markups Cost Americans $25.8 Billion Over the Lives of Their Loans (CRL)
• Robert Lane Greene on Language and the Mind (The Browser)
• What Defines a Meme? (Smithsonian)
• Face Blind (Wired)

What did I miss . . . ?

• Capitalism is failing the middle class (Reuters)

Category: Financial Press

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “Mid-Week Reading”

  1. swag says:

    Lester Bangs’ Basement – What it means to have all music instantly available

    (How did I miss that “C**ksucker Blues” was on YouTube?)

  2. Lyle says:

    On the article about markups, for a long time folks have said get your financing arranged before you buy the car if you can. That takes one element out of the haggling. But this is like knowing the old rules for mortages and if you can’t meet them renting, to old fashioned.

  3. Bruman says:

    I saw this bit in the “Doomsday” article (which I thought was a bit overly dramatic overall, but essentially correct):

    8. Doomsday Warfare: Pentagon math: population + commodities = wars

    The Pentagon predicts that by 2020 “warfare will define human life” as global population explodes 50% to 10 billion in 2050. Powerful commercial, political and ideological forces drive globalization. Emerging nations compete for scarce resources. This is “the mother of all national security issues,” warns the Pentagon.

    It made me think how prescient the Naqoyqasi finale (in the Koyaanisqasi series) was.

    Whenever I read a piece like this, I keep wondering why it is so hard to get the message across that the great things that come from market capitalism all depend on (relatively) evenly distributed information, wealth, and capabilities. The moment you start to have excessive concentration of resources, market power, etc., then the invisible hand becomes punch drunk. Ironically, just because Marx was off-base on his solution to the problems of capitalism doesn’t mean he was incorrect in his diagnosis of them.

  4. willid3 says:

    another take on S&P
    But I’d first like to address the way the media and some blogosphere commentators have hopelessly muddied the issues on the downgrade scaremongering. One is the “we depend on foreigners to fund our budget deficit” hogwash. As Michael Pettis pointed out, the idea that the US is funding its federal deficit from foreigners is a widespread misconstruction. The reason we have capital inflows, largely but not entirely foreign purchases of Treasuries, is that we are running a current account deficit. As long as our trade partners want to run surpluses with us, they wind up holding dollars. They could just keep them as cash, but most seem to prefer to get some income, and Treasuries are a popular choice because they are liquid.

    If they want to quit accumulating dollars, they have to stop running surpluses with us. Despite all the brave talk of rebalancing, no one seems very keen to do that right now. Most countries except the US seem to like the idea of having high domestic employment rates by virtue of selling goods to the US.

    So if they decided they wanted to quit accumulating dollars, what happens? If the US trade deficit went into balance, we’d replace the goods we bought from abroad with domestic production. That means a higher domestic employment rate since we are no longer “leaking demand” abroad. That means a higher growth rate and higher tax receipts. Both of those would improve out debt to GDP ratio. (Pettis provides a longer form discussion with more scenarios, but this is the drift of the gist).

    The second misconstruction is acting as if GDP were static and impervious to budgetary changes, and therefore the way to deal with large debt levels is to cut spending. Unfortunately, empirical evidence solidly refutes this idea. The UK tried that 10 times in the last 100 years, and every time the debt to GDP ratio got worse. We are seeing the same results in Ireland and Latvia. In Japan, when the government got nervous about spending in 1997 and reduced expenditures, the debt ratio worsened.

    Conversely, when an economy is slack (and that is the critical caveat), well targeted spending (and that does NOT mean tax cuts to the rich, who put too much of their excess dough in secondary securities markets) produces GDP increases such that the debt ratios do not worsen, indeed, they typically improve. The trick is, like steering a car into a skid, when to judge when you’ve reached the point that you can begin to change course. That’s one reason why automatic stabilizers, like unemployment insurance and food stamps, are so useful: not only do they target people in need and therefore likely to spend, but those expenditures fall off naturally when the economy improves. They don’t need to rely on Congresscritters to exercise discipline; the programs are structured to pay out less in a strong economy.

    Now to the interesting and not widely noticed part of the S&P commentary. Even though we are pretty skeptical of the rating agency’s analysis, remember that they tend to be followers rather than leaders (as in they often issue corporate downgrades after spreads have widened). Thus a view like this is noteworthy (hat tip reader Lynn F; boldface ours):

    Additional fiscal risks we see for the U.S. include the potential for further extraordinary official assistance to large players in the U.S. financial or other sectors, along with outlays related to various federal credit programs. We estimate that it could cost the U.S. government as much as 3.5% of GDP to appropriately capitalize and relaunch Fannie Mae and Freddie Mac, two financial institutions now under federal control, in addition to the 1% of GDP already invested (see “U.S. Government Cost To Resolve And Relaunch Fannie Mae And Freddie Mac Could Approach $700 Billion,” Nov. 4, 2010, RatingsDirect). The potential for losses on federal direct and guaranteed loans (such as student loans) is another material fiscal risk, in our view. Most importantly, we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008, as our downward revisions of our Banking Industry Country Risk Assessment (BICRA) on the U.S. to Group 3 from Group 2 in December 2009 and to Group 2 from Group 1 in December 2008 reflect (see “Banking Industry Country Risk Assessments,” March 8, 2011, and ” Banking Industry Country Risk Assessment: United States of America,” Feb. 1, 2010, both on RatingsDirect). In line with these views, we now estimate the maximum aggregate, up-front fiscal cost to the U.S. government of resolving potential financial sector asset impairment in a stress scenario at 34% of GDP compared with our estimate of 26% in 2007.


    so the banks are still a major risk to the economy.

  5. Niskyboy says:

    Check out Michael Connelly’s new book, The Fifth Witness. You of all people will especially enjoy the real estate angle.

  6. Mike in Nola says:

    On the latest media scaremongering about malware:

    Caroline Baum is shooting for a gig on Fox News. The debt commission and gang of six are all about protecting the wealthy.

  7. Mike in Nola says:

    Some potentially big news for our nation’s underfunded libraries; not good news for librarians or the brick and mortar libraries. Library lending of Kindle books.

    One comment pointed out a big advantage: no more second hand boogers on books :)

    It is still nice browsing the shelves, thought.

  8. arrian says:

    Caroline Baum is shooting for a gig on Fox News

    Heh, heh – It hasn’t prevented BR from quoting her on numerous occasions.

  9. Lariat1 says:

    Mike in Nola: Interesting read in Yankee magazine: ” But savvy librarians have seen the future and brought it to their patrons. Recent innovations at many rural libraries include investment in a satellite dish and WiFi, which afford patrons high-speed Web access and wireless computing. These are popular additions in villages where cable is nonexistent and DSL connectivity may be nil. As a result, people can sit in the library parking lot and log on to the Internet, which they can’t do at home. Many librarians have reported to me, with amusement, that their parking lots are often filled after hours as folks come to make use of this free and mysterious service. ” Link is here:

  10. jeg3 says:

    and don’t forget to read the comments.

    Got Gas and Wind.
    “More Bad News For Natural Gas: An Accident In Pennsylvania Is Pouring Toxic Fracking Fluid Into A River”
    “What would be the impact of 31-cent power on GDP? It raises the cost of the same electricity from 1.4% to 8.7% of GDP, removing (8.7 – 1.4) 7.3% of productivity from our economy. “
    “We have a duty to base our judgments on the best available information. This is not only because we owe it to other people to represent the issues fairly, but also because we owe it to ourselves not to squander our lives on fairytales. A great wrong has been done by this movement. We must put it right. “
    “This is expected to cut years off the process of designing new and better reactors. “

    What are the crass wealthy philistines up to, oh yeah,they attack children and their future.
    “U. S. Engineers: Not Without Honor Except In Their Own Country”
    and to begin with, 13% of pseudo-biology teachers need to be fired.

    “A nation that destroys its systems of education, degrades its public information, guts its public libraries and turns its airwaves into vehicles for cheap, mindless amusement becomes deaf, dumb and blind. It prizes test scores above critical thinking and literacy. “

    “Although they have been fighting to protect their rights and their profession, many educators are concerned that this influence will also be directly felt in their very own classrooms, as political ideologues also seek to rewrite social studies and science curriculum. “

    “Teachers, their unions under attack, are becoming as replaceable as minimum-wage employees at Burger King. We spurn real teachers–those with the capacity to inspire children to think, those who help the young discover their gifts and potential–and replace them with instructors who teach to narrow, standardized tests. These instructors obey. They teach children to obey. And that is the point. The No Child Left Behind program, modeled on the “Texas Miracle,” is a fraud. It worked no better than our deregulated financial system. But when you shut out debate these dead ideas are self-perpetuating. “

    “Zero-Tolerance Education Policies Are Destroying Young People’s Lives”

  11. lalaland says:

    I started on various aspects of the Ryan plan, but I keep circling back to the same foundation:

    Rich people are a poor investment. If we’re going to make it happen in this silly country, we’ve got to stop investing in rich people, and invest more elsewhere – diversify the portfolio as it were.

  12. lalaland says:

    Under performing asset.

  13. Mike in Nola says:

    Lariat1: interesting read. I was actually thinking of the Houston Library when I wrote that. They are undergoing cutbacks, as I imagine many are. I think we saw some of the effects today: four self-checkout machines. Only two working and one of them wouldn’t print a receipt. No one to even report the problem to as there looked to be only 2 people working while there were fifty kids in the library.

  14. budhak0n says:

    Because what we really need Mike to refire that good old american spirit is more librarians on the payroll.

    It’s going to be a good summer.

  15. Lariat1 says:

    I don’t know, the only building that is going on in my area is libraries. The town five miles away finished their library/community center in 2009. The old one was in a small storefront forever. The Odd Fellows donated the land. Two towns up from me a new library is just finished and it’s driveway and parking area are concrete, which has some folks a bit upset, understandably so. My town successfully voted last November to build a new library also. Maybe the rural areas still understand the importance of having a center, a place to go, a place that keeps the community together.

  16. Jim67545 says:

    The CRL article addresses a loan mark-up practice which is quite lucrative to car dealers. The finance guy is usually on commission based on how high a rate and how much insurance, warantees, etc. they can obtain. The dealer is paid roughly 1% of the loan amount for every 0.40% they can push up the rate. Those with weaker credit are predisposed to expect a high rate so they are more accepting of what the dealer quotes. So, they get raped.

    Let me suggest: 1. Call your bank and ask what their auto rate is if you get the loan directly (they may need to pull your credit before responding or tell them your credit score.) 2. Call a credit union and ask the same. Often they will be a little bit below the market (employing a part of their income tax free benefit.) From this you’ll generally know the market rates. 3. When the dealer says they can get you a loan at, say, 6.50% for 5 years, and assuming it is close to the market, tell them you want a rate 0.80% lower. In my experience most dealers try to get a 2% (of loan amount) Dealer Reserve (mark-up payment) so that translates to 0.80%.

    You might not get that rate but it will stimulate a conversation. You could threated to go to the credit union. The finance guy might respond with another lender with better rates but who pays less to the dealer and/or does not pay a kickback under the table directly to the finance guy. This is a nasty corner of the banking industry which cries for the type of disclosure rules now found in the mortgage arena.

    Of course, the other things, insurance, warrantees, etc. are all high mark-up products (200-300%) and the customer’s price is what the traffic will bear. Caveat emptor.

  17. Jim67545 says:

    Let me add, the practice of the dealer being paid for higher note rate is prohibited in some states.

  18. Brent_in_Aurora says:

    Succinct article on the recent DoJ indictments and attempts to regulate online poker.

  19. Francois says:

    The second misconstruction is acting as if GDP were static and impervious to budgetary changes, and therefore the way to deal with large debt levels is to cut spending. Unfortunately, empirical evidence solidly refutes this idea. The UK tried that 10 times in the last 100 years, and every time the debt to GDP ratio got worse. We are seeing the same results in Ireland and Latvia. In Japan, when the government got nervous about spending in 1997 and reduced expenditures, the debt ratio worsened.

    Yet, as agent Scoffield said in The Matarese Circle, “The bastards never learn!”

    Either they are dangerously dimwitted, or it is in the interest of some NOT to learn.

    Which truly begs the question: Who are those “some” and how do they profit?

  20. Francois says:

    Re Caroline Baum:

    I totally lost any respect I could have had for her. Anyone able to write “Ryan is applauded for his bold vision and reviled (by Democrats) for his bold vision.” must be labeled as “partisan hack with no understanding of the facts”. The long term effects of the Ryan “plan” on Medicare and Medicaid would put back this country on par with Peru, Bolivia and other health care savage systems where inability to pay CASH (or being a well-connected dude) mean a certain death in case of catastrophe or severe ailment.