John At The Center

Meanwhile, the FT reports that the Federal Reserve has made a $14 billion profit on its various crisis-fighting loan programs. This is great! Let’s a have a financial crisis every year!

Actually no, let’s not. The other costs of the crisis—lost tax revenues, recession-fighting stimulus measures, etc.—will far outweigh any gains made on TARP or on Fed loans. And it’s still far from certain that TARP will end up in the black (the GM and Chrysler loans in particular still look quite risky). But the increasing likelihood that it won’t be a big drain on the government’s purse is an interesting and politically significant development.

via TARP and the Federal Reserve make money off the financial crisis – The Curious Capitalist – TIME.com.

In effect, share buybacks resulting from option issuance destroy value, not boost it as Prof. Lazonick implies. Take the example of IBM, which he says spent $73bn on stock repurchase from 2000 to 2008, half the current and then-market cap (it happens to be the same, about $155bn). They have net debt of about $13bn according to Wolfram Alpha. During that period, despite having bought back half the market cap in money, the shares in issue have only fallen by about 23%. Not a highly efficient buyback from any perspective, unless you

via Cisco earnings wildly overstated: management milks shareholders for fun and profit « Ultimi Barbarorum.

From the new book The Flaw of Averages, an explanation of why modern finance means that 50% of people who invest intelligently will run out of money before they die.

Assume that our retirement fund is $200,000 dollars and our life expectancy is 20 years. Assume that we invest our money in a mutual fund with a good record. Their annual return has fluctuated from year to year with an average year return of 8%. Our adviser calculates that we can withdraw $21,000 a year and this will exhaust our funds in exactly 20 years. This is illustrated below by the first figure.

via Finance and the Flaw of Averages.

Sales of bottled water have suffered as environmentalists urged boycotts of the product. In 2007, environmental groups intensified campaigns to persuade consumers to reject bottled water as wasteful. Several city governments and restaurants stopped stocking it. Coca-Cola Co., Pepsi and Nestlé Waters North America Inc., a unit of Swiss food giant Nestlé SA and America’s biggest bottled-water maker, have been reducing the amount of plastic in their bottles in response to public criticisms.

via Bottled-Water Price War Heats Up as Demand Falls – WSJ.com.

But in fact, ‘personal consumption expenditures’ in the U.S. is a grab-bag category which includes all sorts of money—like Medicare spending by the government—which never passes through the hands of households. PCE also includes all the consumer goods imported into the U.S.—cars, computers, clothing, and the like—which create very little economic activity in this country.

In fact, by my very rough calculations, the money that people actually pull out of their paychecks and bank accounts to pay for domestically-produced goods and services drives about 40% of economic activity in this country. That’s still large—but the U.S. is nowhere near as dependent on consumer spending as people think.

via Get It Straight: Consumer Spending is *not* 70% of GDP – BusinessWeek.

Haas School of Business.
Sloan says the results are “both striking and surprising, because we teach that stock markets are efficient and based on fundamentals.” The results suggest that investors, analysts, and corporate managers should pay attention to changes in investor recognition. They also shed light on why companies hire investor relations professionals and investment bankers and explain why non-fundamental events, such as index additions and initiation of analyst coverage, cause stock prices to increase.

[M]any of these buildings are worth more as losses, write offs and deductions that as going concerns. The potential rents are so low that few can actually be bothered renting them. The commission for real estate agents are negligible. Commercial leases are by default prohibitively long and often require property owners to meet expensive obligations.

via Market failure in commercial real estate in New York and in Newcastle, NSW – The Curious Capitalist – TIME.com.

Which brings us to Bernanke, whose first four-year term as chairman will expire early next year. He has been pretty good—if far from perfect—as a crisis manager. But crisis management will not, one hopes, be the main job of the Fed over the next four years. Instead the challenge will managing a return to monetary normalcy (and prodding Congress and the Administration to return to fiscal normalcy) without choking off the economic recovery. Is Ben Bernanke the best person for that job? Who knows? He’s surely not the worst. But this much I know: If he cares about his future reputation, he shouldn’t seek reappointment in 2014.

via Is Ben Bernanke the right man at the Fed? – The Curious Capitalist – TIME.com.

How large are the economies of scale of living together? And how do partners share their resources? The first question is usually answered by equivalence scales. Traditional estimation and application of equivalence scales assumes equal sharing of income within the household. This paper uses data on financial satisfaction to simultaneously estimate the sharing rule and the economy of scale parameter in a collective household model. The estimates indicate substantial scale economies of living together, especially for couples who have lived together for some time. On average, wives receive almost 50% of household resources, but there is heterogeneity with respect to the wives’ contribution to household income and the duration of the relationship.

The data are from Switzerland, in case you are wondering, not the United States.

Posted by Tyler Cowen on August 14, 2009 at 0

via Marginal Revolution: The economies of scale of living together.

It may or may not be true, especially these days, that what is good for General Motors is good for America and vice versa, but certainly what is good economically for America is good politically for the president.

It is here that Obama has lucked out. Ben Bernanke is a very good choice for Fed chairman because he is intelligent, honest, pragmatic and clear-sighted in his vision of the economy. He has already guided the Fed through two very tumultuous years with only one major mistake – the bankruptcy of Lehman Brothers.

This probably helped with Obama’s willingness to reappoint Bernanke:

For years, some of his closest friends did not know that Ben S. Bernanke was a Republican. … “If you read anything he’s written, you can’t figure out which political party he’s associated with,” said Mark L. Gertler, a professor of economics at New York University who has written more than a dozen papers with Mr. Bernanke. Mr. Gertler, who said he did not know his close friend’s political a

via Economist’s View: “Obama Lucky to Have Bernanke”.