Archive for the ‘Economics’ Category

by Kim Walker on behalf of Daniel Lubetzky

For further evidence that some bankers just abuse the system, here is a disturbing story about how the Tetragon Financial Group is paying its partners tens of millions even as its fund suffers hundreds of millions.

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By Kim Walker on behalf of Daniel Lubetzky

This article in the New York Times by four law school professors is a sad and poignant indictment of how regulators have become tools of the regulated financial industry and how Wall Street companies have lost all scruples and damaged the economic system as a result.

[Read more →]

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Sometimes in business you are faced with the decision to invest up front more capital resources but ensure that over the long term you see savings, vs. save up front, but at a steady higher cost of production per widget on an ongoing basis.

The problem with choosing the path that is "inexpensive" up front is that it not only creates higher costs for the enterprise over the long haul, but it can also generate externalities (costs to society that the enterprise avoids paying).

A case in point is illustrated by this Edge shaving cream picture:

IMG_0810

The travel-size version has less product but just as much waste in plastic on the cap and the outpouring device.

You can picture the team responsible for designing the travel-size version figuring that it made all the sense in the world to take advantage of existing infrastructure and just making a smaller bottle for travel by just cutting its height/size.

But years later and millions of cans later, so much more waste – AND COST – is generated because you are using such an inefficient means to provide a product: a fraction of the size in product but as much in caps etc.  It should not have necessarily been this way.  They could have designed a less expensive disposable version – but it would have required an upfront investment in capital.

Too bad.

 

A lot of "convenience" products like travel

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We came to America for the American dream – to do good and to make good.

- K.R. Sridhar

(As quoted in a column by Tom Friedman in the NYT)

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I’ve shared before how technology, media and politics can be (and often are) hijacked by the passionate extremes. In a recent article, Tyler Cowen argues that the “median voter theorem” posits that politicians can’t ultimately stray too far from the mainstream where citizens live.

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Too Big to Lose

Published under Economics, United States Feb 13, 2010

A lot has been written on the "Too Big to Fail" problem: the perception that some firms are so large that their failures would lead to systemic failure for the entire economy; the related conclusion that companies in that category should be bailed out to prevent a massive breakdown of the financial system; and the resulting moral hazard problem – that these big firms then can take all the risks in the world knowing there is no downside to them.  A direct result of this problem has been that many Wall Street insiders profited at the expense of American taxpayers when they were bailed out by the US government.

But a no less serious problem is that some of these firms are "too big to lose." They wield so much influence over the economy that they can manipulate the outcome of their trades.  It’s as if the President of the United States could short a particular market and then use his bully pulpit to scare the market to move in his direction.

A case in point is what Goldman did with mortgage securities.  Gretchen Morgenson of the New York Times wrote an incisive article about the Goldman conflict with AIG.  In it, she details how Goldman bet against the mortgage market by buying insurance from AIG on certain products that would pay if the underlying mortgage securities went south.  There is nothing wrong with that – so far.  For years, many (including me) also feared that a bubble had formed in real estate.  Goldman’s Jonathan Egol and Ram Sundaram were smart and arguably even visionary to anticipate it and bet against mortgage securities. But the problem is what they did next.  They proceeded to bully A.I.G., other business partners, and even the Federal Government, to pay them at valuations THEY arbitrarily set.  The perception that Goldman bankers are the smartest bankers in the room helped them create the momentum that led to the devaluation from which they benefited. 

Wall Street sharks will go where they smell the blood, and you cannot change that.  It is a necessary feature of a market economy – which is the worst of all economic models, except for all other options, to paraphrase Winston Churchill.

But Paul Volcker’s call to structurally protect against these financial behemoths must be heeded.   In this opinion piece he walks through some of the prescriptions that are necessary, including regulating which risks the different financial institutions can take, separating commercial banks from investment banks by reversing the recent decision to allow them to perform the same function and gamble with their account-holders’ savings, and limiting the leverage these firms can have.

[Read more →]

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We’d do well to listen to former Fed Chairman Paul Volcker on the structural reforms the U.S. economy and financial sector need. I only hope politicians will rise above special interests and do what the nation needs to build a solid future.

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If you haven’t seen the documentary Food Inc. – you have to.  Like Michael Pollan’s books, this movie will change the way you see food and the world.

If we as consumers and citizens don’t do something quickly to fight back against the food industrial complex, by voting with our dollars, by informing and educating others, and by advocating to the government for more transparency, freedom, and a level playing field for natural foods producers, then the epidemics of diabetes, obesity, environmental degradation, food contamination and inhumane treatment will threaten us further.

Some highlights:

  • Chicken and meat processing is so inhumane, and scary, it makes you feel you can’t avoid but to become a vegetarian – unless you live near Joe Salatin
  • The Food Industrial Complex is abusive, greedy, and scary;
  • corn engineering has created high fructose corn syrup, and the corn lobby has resulted in subsidies for obesity-inducing products;
  • Price distortion from government subsidies causes poor people to buy cheap unhealthy foods made up of corn-derived empty calories – contributing to diabetes and obesity;
  • Otherwise herbivore cows that naturally should feed from grass are now primarily fed corn, causing e-coli contaminations and diseases;
  • Chicken die from the fast weight they put on; and they are treated as tools in an industrial machine – no lives;
  • Monstanto is evil. They hold a ruthless monopoly over soybeans.  They intimidate and sue farmers to use their genetically-modified seeds. Federal and state government agencies have been bought off and serve the interests of the food industrial complex.

Serious work ahead.

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A study recently found that children on Medicaid are given antipsychotic drugs at a rate 4 times higher than those on private health insurance.

The implications for health and justice are deep. Antipsychotic drugs are severely overprescribed – and their long-term damage to society has not yet been registered.

The article posits this trend among the poor may be related to short- sighted measures to "efficiently" control problem children.

A more serious and systemic problem is the abuse by the pharmaceutical industry of government programs – and their undue influence over certain segments of the medical community.

These are scary developments that seem to get scarier with time. A serious and systemic response is necessary.

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Interesting article about an investment scandal in Lebanon that has tarnished Hezbollah’s reputation.

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