Caveat Bettor

Will the real Warren Buffett, please stand up?

2009-11-04T14:08:00.001-05:00

Back in June 2007:

Speaking at a $4,600-a-seat fundraiser in New York for Senator Hillary Clinton, Mr Buffett, who is worth an estimated $52 billion (£26 billion), said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”

Today, November 2009:

Warren Buffett tells CNBC's Becky Quick that Berkshire Hathaway has talked to five big financial firms about buying their tax credits.
Buffett says he can't name any names due to confidentiality agreements, but notes that Berkshire has been buying tax credits since 1990 and will continue to do so in the future.

Can someone reconcile Buffett with Buffett for me?

Quotes of the day

2009-11-03T12:08:00.018-05:00

... we have sunk to such a depth that the restatement of the obvious has become the first duty of intelligent men.--George Orwell, in 1939

Countering embarrassment can not only enhance pleasure, but save lives. --Jeremy Laurance

The scholars who create economic theory do not read the newspapers regularly or carefully during working hours.--George Stigler

I don't usually respond to illogical cheap shots from around the blogosphere (life is too short). But when the cheap shot comes from a Nobel prize winner in economics, I will make an exception.--Greg Mankiw

Bad moods can actually be good for you, with an Australian study finding that being sad makes people less gullible, improves their ability to judge others and also boosts memory.--Miral Fahmy

How Do You Make $20 Billion Disappear? Start With a $50 Billion Auto Bailout.--Michael Corkery

California is rich. Even in the midst of a drought, we have lots of water, and in the midst of a recession, we have lots of money. The problem is one of distribution, not of actual scarcity.--Rebecca Solnit

Political violence under communism had an idealistic origin and a cleansing, purifying objective. Those persecuted and killed were defined as politically and morally corrupt and a danger to a superior social system. The Marxist doctrine of class struggle provided ideological support for mass murder. People were persecuted not for what they did but for belonging to social categories that made them suspect. ... The failure of Soviet communism confirms that humans motivated by lofty ideals are capable of inflicting great suffering with a clear conscience. But communism's collapse also suggests that under certain conditions people can tell the difference between right and wrong. The embrace and rejection of communism correspond to the spectrum of attitudes ranging from deluded and destructive idealism to the realization that human nature precludes utopian social arrangements and that the careful balancing of ends and means is the essential precondition of creating and preserving a decent society. --Paul Hollander

At best, Kenneth Feinberg's compensation rules for the seven TARP firms and the Fed's proposed guidelines on pay for the entire industry might chase out the opportunistic rabble who poured into the industry over the last decade to take advantage of its well-advertised pay and growing social prestige. People who, in other times, would and have flocked to law, or medicine, or technology startups and who, like rats off a sinking ship, will swarm onto another platform as soon as Michael Porter, or Seth Godin, or Sergey Brin identifies it for them. ... But once these johhny-come-latelies leave, who will remain? I'll tell you who: people against whom your pitiful, transparent little compensation levers will have no effect whatsoever. People who do the business because they love it, because they are good at it, and because there are only so many slots open in the natural ecosystem for pinnacle predators, and the Great White Sharks and Polar Bears got most of them first.--Epicurean Dealmaker

And there's not even a hint that the global disease will be cured. Other behavioral economists' books are misleading, promising a cure -- which only proves their brains are also infected with the disease. There is no cure.--Paul Farrell

... three percent is around the ceiling of sustainable deficits. Six percent is well above that ceiling. At six percent, your debt service burden starts growing much faster than your tax revenues.--Megan McArdle

We have to worry about future climates, because, right now in Nevada, we are in a nine year drought—and, basically since the last Ice Age, we have been in a 10,000-year drought. 80% of the time, if we look a million years into the past, we have, on average, twice the precipitation we have now. Most of the past is—and the future will be—wetter and cooler.--Abraham Van Luik

[Angela Merkel] is, if you like, the anti-Obama: zero charisma, zero glamour, beige pantsuits, and a spouse who rarely appears in public.--Anne Applebaum
Proponents of the “poverty trap” explanation argue that underdeveloped countries are so poor that individuals can’t save enough to support the investment necessary to generate economic growth. The only way to break out of the cycle is through external funding. [Peter Thomas] Bauer argued that the poverty trap cannot be a binding constraint. The mere existence of prosperous individuals and societies—most of which have emerged from poverty without the assistance of foreign aid—flies in the face of the poverty trap. While it is true that poor people can’t save as much relative to rich people, if the right incentives are in place, small scale savings will lead to small scale investment, which in turn will generate marginally higher incomes leading to medium scale savings and investment, thus creating a “friendly circle of wealth.” ... While most development agencies profess a commitment to measurable results and outcomes, “results” in development are puzzlingly often equated with volume of loans given or number of grants handed out. According to Bauer, the reason for this apparent contradiction is that collective guilt has replaced individual responsibility. Because the West feels responsible for the lack of development in the rest of the world, what matters is to give away money, not actually see results.--Claudia Williamson

The Greatest Trade Ever

2009-11-03T12:00:00.003-05:00

Matthew Wuertzel on Gregory Zuckerman's eponymous book:

[John] Paulson was successful not only because he was open to letting data on subprime speak to him, but because he cultivated slightly off-center analysts like Paolo Pellegrini in his own shop who were just stubborn enough, or desperate enough, not to be sucked in by the powerful conventional wisdom -- the belief that They Must Know Because They Are Experts. The motivations here are obvious. Certainly Paulson craves the fame of besting George Soros for the biggest trade in history, but the real metric is always monetary: how much? Zuckerman doesn't make a huge deal about this, and for a very rich man Paulson can appear surprisingly modest and grounded (he takes public transportation), but this is a world, built on speculation, where levels of income and indebtedness are simply astounding.

Like the crisis itself, "The Greatest Trade Ever" is a sort of exploration of the difficulties, psychological, financial and philosophical, of prediction. Zuckerman is quite good in suggesting just how tough it was, even for those closest to real estate and the mortgage boom, to recognize the growing problem, particularly in 2004 and 2005. Even experienced real estate operators, who knew the market well failed to see it coming, and those who did often reacted to anecdotal evidence not data -- the fact that their wives wanted to plunge into real estate or that every doctor they knew was flipping houses. The sheer ubiquity of the conventional wisdom (property prices never fall broadly across the U.S.) combined with the complexity of the business and the underlying finance to mask growing problems, which extended well beyond the abuses and irrationalities of subprime. Even Paulson and Pellegrini studied the problem for months before they were able to filter out the noise and generate a single chart that showed just how dramatically real estate prices had been disengaging from long-term trends since 2000. That chart, said Paulson, suddenly revealed a bubble and gave impetus for the big trade.
...
The centerpiece of Paulson's giant trade was his innovative use of CDSs, which allowed him to essentially short mortgage debt in all its forms, while paying relatively small premiums and then, if prices went against him, putting up more collateral. Compared to a normal short, this was an extremely economical trade and one that could be dramatically scaled. But it was complex, and Paulson had to convince major Wall Street firms to trade CDSs on mortgages with him, then, as the situation eroded and he was making vast sums on paper, to figure out how to get out of the trade. But he went well beyond mortgages. Even as the ABX was cratering in early 2007, Paulson coolly began to realize how deeply this crisis might go. He had already put shorts on mortgage providers, but now he began to buy CDS protection against his own providers, the Wall Street firms and big dealers like American International Group Inc. (NYSE:AIG). Intellectually, the thread of the CDS trades took Paulson from the predatory mortgage hucksters at one end of the chain, through securitization and right into the leveraged-fragility of the big banks themselves at the other.
For all his skill, insight and guts, however, Paulson as portrayed by Zuckerman comes across as more empirical than omniscient. He recognized a large truth about oversold real estate. He studied it and over a number of years followed the path one step at a time. He adhered to a rough-and-ready value calculation: What was oversold and over hyped would eventually have to fall. But for all his hard-won insights he was never immodest enough (or stupid enough) to make a call on timing. Indeed, the advantage of the CDS strategy was that the cost of patience was far less than in a traditional short (though some of his less well-capitalized brethren putting on similar trades suffered more). Although Zuckerman never explicitly articulates it, Paulson is not a sterling example of how we should all have seen this coming. He was smart, open to the data, temperamentally suited and lucky. Next time he might be distracted or fixated on what had worked for him in the past, not unconventional enough, not hungry enough or not comprehensive enough in his analysis. It was never easy. Despite his triumph, the future, as Keynes always said, remains irremediably uncertain.
...
Paulson used the very "weapons of mass destruction" to help destroy, or at least threaten, those weapons themselves. The scourge of excess was made possible by excess and profited, by any measure, excessively. Paulson is certainly no villain, but he's not exactly a hero either, despite personal virtues Zuckerman carefully lays out. Like Soros, he recognized and profited from a gap between fantasy and reality that was certain to disappear.

How freedom to choose your mate and capitalizing on education

2009-11-02T15:25:00.002-05:00

increased socioeconomic inequality:

I think that perhaps the most important trend of the past thirty years is the increased importance of cognitive skills relative to physical labor. Obviously, this has been going on for more than just the past thirty years, but during the past thirty years we saw an acceleration. This has had a number of consequences:

1. It changed the role of women. Their comparative advantage went from housework to market work.

2. This in turn, as Wolfers and Stevenson have pointed out, changed the nature of marriage. Men and women look for complementarity in consumption rather than in production.

3. This in turn leads to more assortive mating, with achievement-oriented men looking for interesting mates rather than for good maids.

4. This in turn leads to greater inequality across households. It also fosters greater inequality among children. The children of two affluent parents are likely to have much better genetic and environmental endowments than the children of two (likely unmarried) low-income parents.

5. Inequality is exacerbated by globalization and technological change. If your comparative advantage is basic physical labor, you have to compete with machines as well is with workers from the Third World.

The net result is an economy that has improved considerably for people with high cognitive skills, but which has improved only somewhat for people with relatively low cognitive skills.

Of course, I am a proponent of freedom and making the most of one's opportunities (I nearly equate that with 'being responsible'). But I do expect that those obsessed with reducing inequality--instead of increasing opportunity--will eventually want to take away your right to choose your mate, or to reward you for the hard work you did in school.

Why the government leads to dizziness and inefficiency

2009-11-02T15:19:00.002-05:00

rather than transparency and effective help:

Health reformers start with the problem that some people are expensive to insure, because of pre-existing health conditions. Their solution is to require insurers to sell insurance to everyone (a policy called guaranteed issue) at the same price (called community rating).
This solution, however, causes another problem. For healthy people, insurance is now a bad bet. A person without significant medical needs has an incentive to wait — to buy insurance later if and when he gets sick, a decision that raises the cost of insurance for everyone else. This problem, according to the reformers, calls for another solution: a mandate requiring people to buy health insurance.
But this mandate leads to yet another problem. Requiring an expensive purchase like health insurance can be onerous for low-income families. So the health reformers offer subsidies.
Which brings us back to marginal tax rates. If large health insurance subsidies were offered to all Americans, regardless of income, the program’s cost would be exorbitant, requiring substantial increases in explicit taxes. So, instead, the subsidies are phased out as income rises. As a result, we get implicit marginal rates like those in the Senate Finance bill.

A nice 4 minute primer on the game theory of lobbying

2009-11-02T15:12:00.001-05:00

Via Alex Tabarrok.

Chart of the century

2009-11-02T14:57:00.004-05:00

Source here.

And let's remember, these do not include other taxes, like property, gasoline, sales, telecom, tolls, and other leeches sucking at your wallet.

Chart of the day

2009-11-02T14:09:00.005-05:00

Source here.

I was speaking to an attorney who is in-house at a well known financial services firm and very worried about inflation. While I conceded the risks of inflation were very great (like having more than less nukes ready to fire), I asserted that, unless the money is actually in the money supply, inflation will remain sidelined, too.

This chart seems to support my thesis.

Great post on leadership

2009-11-02T13:49:00.002-05:00

by Timothy Saint and Nicholas Smith, a couple of Marine platoon commanders, each of whom have completed 2 tours in Iraq. Here's the summary:

Respect your subordinates, and make sure they know you respect them.

Honor success. Making it clear that you know who is doing the best work isn't the same as playing favorites -- anyone can get that same respect and honor by doing better work.

Listen to your subordinates. Let them do things their way whenever possible.

Ask before you reprimand. If you start screaming as soon as things go badly, you will look foolish and weak when your team has an explanation.

Make your orders clear and concise.

Leading is frightening; don't give in to that fear or overcompensate for it.

Follow up. If a task is important enough for you to assign, it should be important enough for you to follow-up on. Inspecting the results of the least glamorous tasks shows you aren't above them.

Make your expectations crystal clear from day one.

Get over yourself.

Once you make a decision, stick to it, and make sure everyone falls in line.

Teach these lessons to your subordinates. If they can't or won't learn them, fire them.

Quotes of the day

2009-11-02T08:10:00.018-05:00

New York has withstood the worst economic crisis in seven decades and remains the leading global financial center, followed by Singapore, which topped London as investors’ preferred place for doing business, according to Bloomberg Global Poll. --Alison Fitzgerald

[Leonard] Mlodinow’s book [The Drunkard's Walk, ...] warned that our brains are so hard-wired to misunderstand randomness that we make the same mistakes even after somebody points out the mistakes.--William Easterly

Two years ago, a United Nations scientific panel won the Nobel Peace Prize after concluding that global warming is "unequivocal" and is "very likely" caused by man. Then came a development unforeseen by the U.N.'s Intergovernmental Panel on Climate Change, or IPCC: Data suggested that Earth's temperature was beginning to drop.--Jeffrey Ball

I would prefer an intelligent hell to a stupid paradise.--Blaise Pascal

American politics, which already hadn't been coherent in a very long time, has fallen into burlesque.--Charles Pierce

I believe what we have here is the beginning of the end of complacency. It is now apparent to me that in the haste to ensure compliance with procedures that are inconsistent if not inarticulable, TSA has hastened the likelihood of failure. If we do not insist that TSA work to create articulable policies that make sense, procedures that are explicit and consistent and training that supports both, then we are complicit in what will inevitably be an ultimate compromise of TSA. That compromise may come in the form of terrorist attack, or it may come in the form of a collapse of public support. Either or both are inevitable. Either or both are preventable.--Deidre Walker

Research finds more evidence for the efficacy of monetary as opposed to fiscal policy in ending recessions. And the studies on fiscal stimulus have shown more impact from tax cuts than from spending increases.--Jeffrey Miron

[Obama's] argument is that Fed Ex and UPS thrive even though there’s a Post Office. He forgets to mention that the Post Office has a legal monopoly on first class mail and still loses money. And he forgets that the struggles of the Post Office make it harder to claim that the public option will stand on its own without taxpayer support. If you want to understand how the public option will work, look at GM. It’s exists right now because it is being subsidized out of my pocket and yours. It is being run as a political organization, not just a company trying to make good products and cover its costs. And it is hurting its competitors, Ford, and others, whose success is being reduced by an artificially enhanced competitor.--Russell Roberts

More competition would bring down health care premiums. But the way to increase competition is not by adding a government-run health plan to the 1,300 private firms already providing health insurance. We do have a highly competitive national market for auto and life insurance, after all, and with no public option. There’s no reason we can’t have the same for health insurance.--Jeff Jacoby

The [health care reform] bill's intentions are cloaked in euphemisms and it is teeming with ulterior motives, all cobbled together in closed-door meetings where industry payoffs are offered using taxpayer dollars to facilitate a power grab of unprecedented cost.--David Harsanyi

We're all off in the woods battling over the appropriate discount rate for dynamic tax effects. And we seem to have left a lot of more politically focused journalists behind. I get the sense that this happens in administrations too. The wonks understand that they have to make compromises, so they let bad policies through without a fuss in order to secure some larger agreement. (cough/steeltarrifs/cough). The problem is, they sometimes forget to tell the political people that it's a compromise--and what the cost of that compromise is.--Megan McArdle

Obama's home phone number (202-456-1414) and address are known, but it is hard to harass someone surrounded by Secret Service protection. Less insulated Americans are vulnerable. Currently, liberals enthralled by intimidation are trying to abolish secret ballots in unionization votes. And when Humana, the private health-insurance provider, recently warned its customers about some provisions of Congress's health-care legislation, the Obama administration's reaction was essentially a quote from a Ring Lardner short story: "Shut up, he explained." It is time to speak up about thuggish liberalism, especially when it tries to suppress participation in referendums, which often involve contentious issues. The Supreme Court has blocked disclosure of the 138,000 names. It should block the spreading infection of using disclosure as a tool of liberal coercion.--George Will

What would the impact on social indicators have been had India commenced economic reform one decade earlier, and enjoyed correspondingly faster economic growth and improvements in human development indicators? This paper seeks to estimate the number of "missing children," "missing literates," and "missing non-poor" resulting from delayed reform, slower economic growth, and hence, slower improvement of social indicators. It finds that with earlier reform, 14.5 million more children would have survived, 261 million more Indians would have become literate, and 109 million more people would have risen above the poverty line. The delay in economic reform represents an enormous social tragedy. It drives home the point that India's socialist era, which claimed it would deliver growth with social justice, delivered neither.--Swaminathan Aiyar
Saudi Arabia has long been a key supplier of crude to the US, holding the top slot through most of the 1990s until increasing volumes from Canada relegated the kingdom into second and sometimes third place. But while Saudi Arabia has remained among the top five suppliers to the US, its exports have fallen dramatically this year, and it's not entirely clear why.--Margaret McQuaile
For blacks, being baby-faced meant earning more money, the study found, whereas white CEOs earned less money if they were baby-faced.--Kevin Lewis

But it would be kinda fun to see Celine Dion and Mike Myers wearing orange jumpsuits down in Guantanamo.--Peter Carlson

My newborn

2009-10-31T11:49:00.002-04:00

sounds like a tribble when he sleeps.

Photo link here.

Chart of the day

2009-10-29T16:41:00.002-04:00

Via Derek Thompson

Quotes of the day

2009-10-29T12:33:00.007-04:00

If [Bill and Melinda Gates] indeed have a much-improved aid model, then why this big campaign to defend US government aid agencies (including USAID), whom we and many others have documented do not change in response to – or even acknowledge – failures?--William Easterly

Explaining life does not count as explaining the Universe.--Steven Landsburg

To me, insects are where sushi was 20 years ago.--Marc Dennis

Most commentary I come across is populist diatribe claiming the sector is grossly overpaid, and with public funds too, so requiring that bankers are paid next to nothing. "They wouldn't even be there if we hadn't bailed them out" is a fashionable argument. Newsflash: That is not a solution, it is a quest for retribution against a single cog in a system which all stakeholders (employees, boards, shareholders, regulators, central bankers, tax collecting politicians etc) blithely allowed to develop over the last two decades.--Andrew Clavell

[George] Bonanno and his colleagues found that there are at least three common patterns of grief. Some people find the experience deeply distressing and disorienting but then slowly heal. Some become completely dominated by their sadness, perhaps never to recover. This type is extremely rare. Then there are people who experience some initial shock and distress but who pretty quickly bounce back into the competent execution of their daily lives. Most people, says Bonanno, fit into the third category.--Christine Kenneally

Is it me

2009-10-29T11:58:00.005-04:00

or is there no resemblance between Mark Wahlberg and Jamie Dimon?

Photo links here and here.

Heathcare legislation in 2009 chances slipping away

2009-10-28T17:37:00.002-04:00

Trading on Intrade's December contract over the past 72 hours:

Chart of the day

2009-10-28T16:14:00.001-04:00

Via Mark Perry.

Quotes of the day

2009-10-28T15:07:00.009-04:00

[Wall Street] is a sophisticated marketplace in which firms compete aggressively to secure trade orders and assignments from large corporations and financial institutions. The intense competition for virtually every trade lowers the cost of capital and widens access to financial markets for companies, institutions and governments all over the world. Collectively speaking, Main Street is Wall Street's client and generally has been very well taken care of. In this crisis, Wall Street professionals, through carelessness or errors, lost a lot more money than Main Street did, and probably more, proportionately, lost their jobs too. Wall Street didn't benefit from the market declines, and only in the past few months has it recovered some of what it lost.--Roy Smith

No one will tell you they are a derivatives trader anymore. It's like labelling yourself a sex-offender. Whatever we did, I sure hope it was bad. Because we're getting hell for it.--unnamed derivatives trader

Nothing says “I’m a schmuck from out of town with no pull at the rental counter” like a PT Cruiser.--Tony Woodlief

Eric Holder, Attorney General of the United States, walked up to former DC Councilman Kevin Chavous at an event and told him to pull an ad criticizing the administration for its opposition to the DC school voucher program. The Attorney General of the United States! This is as outrageous and shameful as it is consistent with other administration hostilities toward free speech (see also here) and freedom of the press.--Andrew Coulson

They say that in Hollywood any publicity is good publicity. Thus I was delighted to see Brad DeLong paying attention to my random thoughts on the Krugman/Dubner dispute, Indeed he officially declared that I had lost my mind. But that is not all bad, because in America there are always second acts. On the same day Brad DeLong formally announced that the little known blogger Andrew Sullivan would henceforth be welcomed back into polite society. Someone may want to inform Andrew in case he hasn’t heard the wonderful news. So I knew that there was still hope that a similar fate awaited me someday; when and if I adopted the “correct views” I too might be welcomed back, like a reformed mental patient in one of Stalin’s hospitals. Or just as Fox News can expect to start get interviews again once they “shape up.” Or just as the insurance industry can expect to get a better deal in the health care legislation once it stops saying those awful things.--Scott Sumner

I fail to see the value or the worth in continued U.S. casualties or expenditures of resources in support of the Afghan government in what is, truly, a 35 year-old civil war. ... Thousands of our men and women have returned home with physical and mental wounds, some that will never heal or will only worsen with time. The dead return only in bodily form to be received by families who must be reassured that their dead have sacrificed for a purpose worthy of futures lost, love vanished, and promised dreams unkept. I have lost all confidence that any assurances can be made. As such, I submit my resignation.--Matthew Hoh, senior civilian advisor and former Marine posted in Afghanistan

Provocative essay on macro trends in hubris

2009-10-27T17:27:00.006-04:00

even for David Brooks:

Humans are overconfident creatures. Ninety-four percent of college professors believe they are above average teachers, and 90 percent of drivers believe they are above average behind the wheel. Researchers Paul J.H. Schoemaker and J. Edward Russo gave computer executives quizzes on their industry. Afterward, the executives estimated that they had gotten 5 percent of the answers wrong. In fact, they had gotten 80 percent of the answers wrong.

Fortunately, for those who study the human comedy, the epicenter of overconfidence moves from year to year. Up until recently, people in the financial world bathed in the warm glow of their own self-approval. Hubris in that world always takes the same form: The geniuses there come to believe that they have mastered risk. The future is an algorithm and they’ve cracked the code.

Over the past year, the bonfire of overconfidence has shifted to Washington. Since the masters of finance have been exposed as idiots, the masters of government have concluded (somewhat illogically) that they must be really smart.
...
Again, the issue is not whether government acts, but whether it acts with an awareness of the limits of its knowledge. Sometimes we seem to have a government with no sense of those limits, no sense that perhaps government officials don’t know how to restructure General Motors, pick the most promising battery technology, re-engineer the health care system from the top, or fine-tune the complex system of executive pay.

Furthermore, when extending federal authority, the Obama folks never seem to ask how Republicans will use this power when they regain the White House. The Democrats trust themselves to set private-sector salaries and use extralegal means to go after malefactors, but would they trust a future Dick Cheney?

Stanford economics quiz of the day

2009-10-27T16:34:00.002-04:00

Answer here.

Land in Manhattan roughly 100,000 times more valuable than land in Detroit

2009-10-27T15:23:00.001-04:00

according to Jonathan Miller.

Quotes of the day

2009-10-27T14:29:00.013-04:00

If the expert is so smart, why isn't he rich?--Scott Adams

Experience is a good teacher, but she sends in terrific bills.--Minna Thomas Antrim

Had [Yahoo] done things right with GeoCities, there would be no Facebook, YouTube or MySpace.--anonymous

How to distinguish which theory explains the behavior of any one actor is determined by the response to evidence AGAINST one’s prior position – do you change your beliefs at all?--William Easterly

Yet awards provide emotional responses—gratification, victimization, schadenfreude—that makes the ritual perversely compelling. Understanding that the process is fatally flawed, or even corrupt, seems to do nothing to diminish its appeal.--Jonathan Chait

I finally knew exactly where I stood. My father hated his enemies more than he loved his sons.--Omar Bin Laden

Naming an unborn child is a powerful thing. It is a way to acknowledge to the world what God already knows. A way to say ‘life is precious — this life is precious.'--anonymous

Where's the notification so you don't give additional contracts to folks who are under investigation? If somebody fixed your garage door and they defrauded you-or, rather, you thought they defrauded you-would you give them more business? Nobody else in the country would do that [besides the administrators of the $787 billion stimulus program].--Senator Tom Coburn
Overall, Amtrak is being subsidized to the tune of $32 per passenger according to a new study. But, that includes big time losers like the line between San Antonio and Los Angeles which is losing $462 per passenger. Meanwhile, the Acela, a fast train running between Washington D.C., New York and Boston is actually making money.--Jay Yarrow
So as long as Medicare patients generate more revenue than the marginal cost of treating one additional patient, they're profitable for the hospital--and probably even lower everyone else's bill a little bit, by at least partially defraying some overhead. Of course, if you think that in a universe without Medicare, many or most seniors would probably have found a way to consume a bunch of health care, then yes, Medicare is free riding. But moral calumny aside, the thing about patients whose insurance doesn't cover the average cost of treating them is that they cannot be 100% of your patient pool. Someone has to cover the cost of that MRI machine. If the public option does manage to crowd out other insurance--as it might well do, with the ability to dictate price controls--then suddenly, the public option won't be cheap any more. Hello, fiscal crisis.--Megan McArdle

Good primer about algorithmic, high-frequency, and flash trading

2009-10-27T13:50:00.005-04:00

contained in Goldman's* presentation to the SEC last month.

Reminds me of what a wise blogger wrote back in July. Kudos to Eric, Tyler, and Rick as well.

Decimalization and technology has increased liquidity (which improves price discovery and reduces transaction costs) and automation (which further reduces costs). The only losers are the specialists, broker-dealers and other intermediaries who used to manipulate and free-ride much more than any flash trader.

One of the things I learned from the presentation is that dark pools must execute within the NBBO (National Best Bid and Offer), under Reg ATS. Basically, this allows reduced market impact--instead of having to swallow a steak or a bird whole, or requiring a big fork and sharp knife, dark pools are like the asian sous chefs who cut the meat up into bite sized pieces.

*Disclosures: Yes, Goldman has vested financial interests in the SEC not churning the regulations, but only because it is a market share leader with significant investments. And yes, I do use RediPlus daily, and SIGMA-X occasionally. But I have yet to participate in flash trading.

UPDATE: Mary Schapiro needs to be replaced.

NY Fed (under Geithner) paid AIG's counterparties 100% of par on swap agreements

2009-10-27T07:56:00.007-04:00

instead of taking haircuts (of up to 40%) that AIG CFO Elias Habayeb had initially planned, reports Richard Teitelbaum and Hugh Son*. This cost the government (i.e. taxpayers) over $13 billion by some estimates.

AIG's swap counterparties included Goldman Sachs, Societe General, Deutsche Bank, and Merrill Lynch, who under the broader Fed deal received $14 billion, $17 billion, $9 billion, and $6 billion, respectively.

If anyone tells you that we taxpayers 'made money' on the crisis, or 'Goldman didn't need government help', please ask them about the Fed deal with AIG. Thanks.

I am holding my breath for the new age of 'transparency' to push this secret deal into full, sunny disclosure. I guess my heirs could start ordering my casket soon, right?

*I could not find the link at Bloomberg.com, as this came over Bloomberg news feed 2 minutes after midnight. Will post link when I find it.

UPDATE: Here is the link.

UPDATE: John Carney says the Fed bungled it.

UPDATE: Larry Ribstein called it a 'shell game'.

Prediction markets not optimistic about health care legislation being passed in 2009

2009-10-26T15:48:00.003-04:00

The Intrade contract trading thusly:

I like the liquidity on this contract.

Elbridge Gerry: a democratically elected enemy of democracy

2009-10-26T14:21:00.005-04:00

After reading this:

When Elbridge Gerry proposed in the [Constitutional] Convention that no standing army exceed three thousand men, Washington is supposed to have made a countermotion that "no foreign enemy should invade the United States at any time, with more than three thousand troops."

I went to dig a little deeper on the anecdote, only to be even more disappointed by this:

His deepest groove in history comes from one of his last acts as the Massachusetts governor: prior to the 1812 elections he signed a bill that restructured voting districts to give his party, the Democratic-Republicans, a majority in the legislative body. Since then, such activity has been known as "gerrymanding."

I suppose if the thing that gave me power also threatened my power, as an incumbent I would do what I could to tilt the scales in my favor. This is why I don't believe in government solutions anymore than I believe in any single person or alternate institution.

With maybe a couple of exceptions.

UPDATE: A nice quote from SuperFreakonomics:

[T]he kind of person most likely to be a terrorist is the kind of person most likely to . . . vote. Think of terrorism as civic passion on steroids.