Recently in Business Category
I've blogged in this space before about the many ways in which modern life promotes bigness--in business, government, finance, health care and so forth. Here's another: the New York Times is reporting that a new federal law requiring safety testing of toys, adopted in response to an influx of unsafe toys from overseas, may be a threat to artisanal toy-makers who use maple, beeswax and other wholesome stuff. It seems they can't afford the testing. We've seen situations like this many times before. People are horrified to discover the dangers of some sensitive product--say, milk--and government reacts with legislation. But that legislation requires new equipment, testing and procedures. The result, often, is rapid consolidation into a handful of much bigger providers. It's just very difficult to bear the burden of expensive new requirements unless you happen to be doing a great deal of business.
This toy controversy is an example of how difficult it can be to balance the desire for regulation ("there oughta be a law!") against the desire for niche products (uncured ham, progressive education, handmade toys) that often run afoul of even the best-intended legislation.
Photo Credit: Flickr User monozygotic
Photo Credit: Flickr User monozygotic
From John Cassidy's forthcoming book, How Markets Fail: "In China between 1981 and 2005, according to a recent study by researchers at the World Bank, the poverty rate fell from 84 percent to 22 percent, a drop of almost two thirds. By the end of the period more than 600 million Chinese had been lifted out of poverty."
This striking paragraph is from the excellent Calculatedrisk blog, which is filled with useful data and insight:
. . .this is a reminder that new high rise condos are not included in the new home inventory report from the Census Bureau, and are also not included in the existing home sales report from the NAR (unless they are listed). These uncounted units are concentrated in Miami, Las Vegas, San Diego and other large cities - but as these articles show, there are new condos almost everywhere.The NAR is the National Association of Realtors. Also Alan Abelson, in Barron's, has a column about the sword of Damocles (or perhaps the crabgrass avalanche) hanging over the housing marke, in the form of foreclosures waiting to happent:
The full Abelson column is here, but i'm not sure it's available to non-subscribers. For some broader perspective, consider that Moody's and Zillow agree that about a quarter of homes are "underwater," meaning they are burdened with mortgages greater than their valueAmherst [Securities] estimates this massive overhang at seven million units. That's the equivalent of 135% of a full year's existing-home sales and chillingly greater than the 1.27 million units that made up the overhang in early 2005, when the housing bubble had just begun its dizzying and more than a little lunatic ascent.
Put another way, of the 56 million units that the Mortgage Bankers Association says make up the mortgage universe, Amherst gauges 6.94 million units are in what it dubs the "delinquency pipeline" eventually headed for liquidation. And it reckons that another 300,000 mortgages replenish that unwelcome flow every month.
Essentially, then, this shadow inventory represents a massive furtive supply of future foreclosure.
The Boston Globe reports on financial troubles at WGBH, the nationally important public broadcaster up there, which just two years ago celebrated the opening of its expensive new headquarters. Why should anyone care outside of Boston? Because it's a great example of what invariably seems to happen when a company builds itself fancy new offices. Just look at the New York Times, with its Renzo Piano tower on Eighth Avenue. As soon as these places are done--sometimes even before--the company gets into trouble.
These myopic projects are launched by businesses quite literally at the pinnacle of their powers, and they are a sure sign of hubris. It says right in the Bible, a new HQ goeth before the fall. In fact when I was a young business reporter at the LA Times, wearing a high collar and a skimmer as I banged out my copy on an ancient Remington, cigarette dangling from my lip, we always used to say that you should short any company that builds itself a new headquarters. If only you could short a PBS station...PS--Surely there is fodder here for some graduate student, since of course I am relying on memory and anecdote. Where is the study analyzing the performance of companies that build new headquarters? It's a thesis waiting to happen.
Photo Credit: http://www.flickr.com/photos/carpeliam/1578386591, http://www.flickr.com/photos/paalia/3596228512/
Mike Winerip has a fine, sad story in the New York Times about a 58-year-old man who went from a highly paid executive position to 18 months of unemployment. Of course billions of people (in war-zones, hospices, etc.) are worse off. But what I found interesting about the piece is that this man's life seems to encapsulate everything that is best and worst in American life.
On the one hand, he enjoyed a level of freedom and affluence that would have been unimaginable to most people not long ago--or to many of the world's people today. On the other hand, he's a strange, free-floating form of being, lost in time-space, a victim of the intense specialization and mobility that modern life fosters. When things were good, he used this freedom to leave his wife. Since he could work from home (at a job he can barely explain), he moved from suburban Washington, DC, to somewhere in Florida. Then his job went away and he moved to suburban New York, where he thought there would be more opportunities. But there are none. Prospective
employers want applications to be submitted electronically, then never respond to them, so that the whole thing seems an exercise in futility, like yoo-hooing frantically into the void. Now he has no job, no apparent community and no particular prospects. He lives alone, of course. I should think his current situation, to many of the world's people, would be terrifying.
Yet he strives to reinvent himself. He's writing genre novels, taking notes on his Blackberry. It's great that he doesn't just sit home, drinking beer and watching TV (like everyone else!), but what a sad pickle. I cannot think of a recent article that captures more effectively both the great opportunities and terrible pitfalls of life in our society.
Photo Credit: http://www.flickr.com/photos/exalthim/226974610
On the one hand, he enjoyed a level of freedom and affluence that would have been unimaginable to most people not long ago--or to many of the world's people today. On the other hand, he's a strange, free-floating form of being, lost in time-space, a victim of the intense specialization and mobility that modern life fosters. When things were good, he used this freedom to leave his wife. Since he could work from home (at a job he can barely explain), he moved from suburban Washington, DC, to somewhere in Florida. Then his job went away and he moved to suburban New York, where he thought there would be more opportunities. But there are none. Prospective
employers want applications to be submitted electronically, then never respond to them, so that the whole thing seems an exercise in futility, like yoo-hooing frantically into the void. Now he has no job, no apparent community and no particular prospects. He lives alone, of course. I should think his current situation, to many of the world's people, would be terrifying.Yet he strives to reinvent himself. He's writing genre novels, taking notes on his Blackberry. It's great that he doesn't just sit home, drinking beer and watching TV (like everyone else!), but what a sad pickle. I cannot think of a recent article that captures more effectively both the great opportunities and terrible pitfalls of life in our society.
Photo Credit: http://www.flickr.com/photos/exalthim/226974610
Law enforcement authorities have arrested an alleged dealer in forbidden commodities, and the condemnations are flying thick and fast. What is the dastardly crime with which this individual is charged? Saving people's lives by bringing together buyers and sellers of kidneys.
It's illegal in this country to buy or sell organs for transplant. This is an unjust law made and enforced by people who desperately need neither organs nor money. It condemns kidney-disease sufferers to death and potential organ donors to poverty. It's a law that I will unhesitatingly break if one of my children needs a kidney, and I hope you will have the decency to do the same if a member of your family is in a similar situation.
The AP story I linked to above discusses some of the ills that supposedly flow from a market in organs. It quotes a medical ethicist at my own alma mater arguing that it's better for people to die than buy organs:
The sanctimony of those who condemn these transactions strikes me as outrageous. If someone has the right to abort her own fetus, why does she not have the right to sell her own kidney? By what authority does the state tell me I cannot save myself or my family members by paying money I earned to a willing seller of a surplus item? In fact, why wouldn't a system of national health insurance include a provision for organ purchases? These transactions should not just be legal for the rich but subsidized for the poor, all in a carefully designed and closely regulated marketplace serving buyers, sellers and even medical ethicists. It's a shame that even one more person has to die before this law is changed.
UPDATE: From the July 27 Wall Street Journal:
It's illegal in this country to buy or sell organs for transplant. This is an unjust law made and enforced by people who desperately need neither organs nor money. It condemns kidney-disease sufferers to death and potential organ donors to poverty. It's a law that I will unhesitatingly break if one of my children needs a kidney, and I hope you will have the decency to do the same if a member of your family is in a similar situation.
The AP story I linked to above discusses some of the ills that supposedly flow from a market in organs. It quotes a medical ethicist at my own alma mater arguing that it's better for people to die than buy organs:
"There is a black market, almost exclusively in kidneys," Caplan said. "All international medical groups and governments ought to condemn any marketing in body parts. It's simply too exploitative of the poor and vulnerable. The quality of the organs is questionable. People lie to get the money. The middle men are irresponsible and often criminals. They don't care about the people who sell."Yet it seems to me that all these supposed problems (none of which deterred the defendant's alleged kidney-patient clients) are the result of the ridiculous prohibition on organ sales. The middle men, for example, are only criminals because of the stupid law, just as sellers of bourbon were during Prohibition. The lying is also related to the ban. A legal, regulated and transparent market could solve the problems of exploitation and organ quality. The huge buy/sell price spread apparent in Mr. Rosenbaum's alleged operation would collapse if the risk, subterfuge and bribery were taken out of the trade.
The sanctimony of those who condemn these transactions strikes me as outrageous. If someone has the right to abort her own fetus, why does she not have the right to sell her own kidney? By what authority does the state tell me I cannot save myself or my family members by paying money I earned to a willing seller of a surplus item? In fact, why wouldn't a system of national health insurance include a provision for organ purchases? These transactions should not just be legal for the rich but subsidized for the poor, all in a carefully designed and closely regulated marketplace serving buyers, sellers and even medical ethicists. It's a shame that even one more person has to die before this law is changed.
UPDATE: From the July 27 Wall Street Journal:
More than 80,000 Americans now wait for a kidney, according the United Network for Organ Sharing. Thirteen of them die daily; the rest languish for years on dialysis. The number of donors last year was lower than in 2005, despite decades of work to encourage people to sign donor cards and donate to loved ones.
An overlooked aspect of the housing bubble that recently popped was its global nature. Home prices soared in Ireland, Spain, Sweden, France, Australia, South Africa and many other countries in addition to the United States. If it's any consolation, the boom has gone bust everywhere.
A remarkably prescient story in the Economist laid it all out four years ago. Here is how the article began:
A remarkably prescient story in the Economist laid it all out four years ago. Here is how the article began:
Pretty good call, huh? Aside from that, I'd like to see a coherent account of how all this happened. I'm sure there is one out there, although I realize this is the sort of thing that will keep economists and historians busy for decades to come. They're still debating the great crash of 1929, after all.NEVER before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?
According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.
I'm always skeptical when people who are unhappy about the price of something or other blame "speculators." But the latest issue of Barron's (rarely mistaken for the Daily Worker) has a straightforward explanation of why limits on commodities speculation make sense--basically, because these markets are so small compared to the vast capital available to be invested in them.
The article supports a regulatory distinction between hedgers--those actually engaged in a given business, such as oil or pork bellies, who use commodities markets to insure against risks in the marketplace--and those who merely place bets, an action that provides important liquidity for hedgers and their industries but which, taken to extremes, could severely distort pricing. With respect to agricultural products, the government enforces position limits only on the bettors--the speculators. Barron's suggests it might just as well do the same in oil, where commodity index funds appear to be a major force in driving up prices.
Of course I'm in favor of higher oil prices. I only wish we had the sense to pay them to ourselves in the form of higher energy taxes. That failing, I suppose we'll have to rely on commodities traders and OPEC nations to take our money instead.
The article supports a regulatory distinction between hedgers--those actually engaged in a given business, such as oil or pork bellies, who use commodities markets to insure against risks in the marketplace--and those who merely place bets, an action that provides important liquidity for hedgers and their industries but which, taken to extremes, could severely distort pricing. With respect to agricultural products, the government enforces position limits only on the bettors--the speculators. Barron's suggests it might just as well do the same in oil, where commodity index funds appear to be a major force in driving up prices.
Of course I'm in favor of higher oil prices. I only wish we had the sense to pay them to ourselves in the form of higher energy taxes. That failing, I suppose we'll have to rely on commodities traders and OPEC nations to take our money instead.
Thanks to the Economist, I discovered an interesting report from McKinsey & Co. on the costs of our inadequate educational system. A key finding:
If the United States had in recent years closed the gap between its educational achievement levels and those of better-performing nations such as Finland and Korea, GDP in 2008 could have been $1.3 trillion to $2.3 trillion higher. This represents 9 to 16 percent of GDP.Ok, those are small, homogenous countries and maybe don't offer a good comparison. But merely bringing black and Latino students up to the level of white ones in the U.S. would add 2 to 4 points to GDP. The economic consequences of our education failures dwarf the nation's current financial woes:
...the persistence of these educational achievement gaps imposes on the United States the economic equivalent of a permanent national recession.What a sad story at every level.
In The Way We Live Now, Trollope gives us a crooked financier by the name of Augustus Melmotte who is for awhile the toast of London--until his finagling comes crashing down and, at last out of options, he takes his own life.
I thought of Melmotte when I read about Bernie Madoff's preposterous sentence of 150 years. God knows I have no intention of defending Madoff, whose crimes really are hideous. I was the guy who unearthed the ZZZZ Best Ponzi scheme perpetrated by Barry Minkow, which at the time was considered enormous but which, even at its peak, wouldn't have paid the interest on the Madoff caper for a month. So if you are running a financial fraud, do not look in this direction for succor or sympathy
But 150 years is absurd. Killers routinely get off with less, and in this case there was no need to pile it on in order to ward off parole (Reuters has a little story about the 100 year club here) because as I understand it, there is no parole nowadays in a federal case of this kind.
All that said, it was clear from the outset that Madoff would spend the rest of his life in prison. What surprised me as much as the sentence was the fact that, unlike Augustus Melmotte, he didn't commit suicide.
In retrospect I'm surprised he didn't do it right when the jig was up--or even just before. Certainly he had reasonable grounds--I daresay more than most of the 32,000 suicides in this country annually. He'd had a good run for 71 years, his life was basically over, and he might have shuffled off the stage before all the trouble. Why not end it all while the going was good? It's strange that some of his investors have done so yet he hasn't. I wonder if he considered it? I'm not advocating it of course, any more than I would advocate a ridiculous prison term--or for that matter, the death penalty.
If I had to venture a guess, it would be that he believed doing himself in might leave his family more exposed to possible prosecution. Madoff has consistently contended that he acted alone. Perhaps he felt he could make the case better in person than in a suicide note.
I thought of Melmotte when I read about Bernie Madoff's preposterous sentence of 150 years. God knows I have no intention of defending Madoff, whose crimes really are hideous. I was the guy who unearthed the ZZZZ Best Ponzi scheme perpetrated by Barry Minkow, which at the time was considered enormous but which, even at its peak, wouldn't have paid the interest on the Madoff caper for a month. So if you are running a financial fraud, do not look in this direction for succor or sympathy
But 150 years is absurd. Killers routinely get off with less, and in this case there was no need to pile it on in order to ward off parole (Reuters has a little story about the 100 year club here) because as I understand it, there is no parole nowadays in a federal case of this kind.
All that said, it was clear from the outset that Madoff would spend the rest of his life in prison. What surprised me as much as the sentence was the fact that, unlike Augustus Melmotte, he didn't commit suicide.
In retrospect I'm surprised he didn't do it right when the jig was up--or even just before. Certainly he had reasonable grounds--I daresay more than most of the 32,000 suicides in this country annually. He'd had a good run for 71 years, his life was basically over, and he might have shuffled off the stage before all the trouble. Why not end it all while the going was good? It's strange that some of his investors have done so yet he hasn't. I wonder if he considered it? I'm not advocating it of course, any more than I would advocate a ridiculous prison term--or for that matter, the death penalty.
If I had to venture a guess, it would be that he believed doing himself in might leave his family more exposed to possible prosecution. Madoff has consistently contended that he acted alone. Perhaps he felt he could make the case better in person than in a suicide note.
Daniel Akst
