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Archive for July, 2009

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  • Here's a surprise: Wild crows can recognize individual people. They can pick a person out of a crowd, follow them, and remember them — apparently for years. But people — even people who love crows — usually can't tell them apart. So what we have for you are two experiments that tell this story.
  • The idea that the inflation genie can be painlessly rebottled has no historic precedent. Even mainstream economists, who've never met a fiscal stimulus they didn't like, agree that central banks must act preemptively with regard to inflation. Bernanke is making the case that the new set of liquidity tools, hastily developed in the panic of late 2008, will act just as well in reverse. But liquidity is a lot like liquid, it's a lot easier to spill than to un-spill. The Chairman believes that his new gadgetry will allow him to perform a feat of monetary magic no other central banker has managed to pull off. But given his history of getting it wrong, why should we assume that this time he will get it right?

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  • Finance is regulated precisely because finance is substantially backstopped by implicit government guarantees. If you can manage to take advantage of those guarantees while slipping free of the prophylactic regulation, there are windfall profits to be made. And firms seek to innovate precisely in order to generate windfall profits. The moral of the story, pretty clearly, is that this—innovation as regulatory evasion—is something regulators should expect to happen, and should be extremely vigilant about. What we had instead during the Rubin/Greenspan/Bush years was precisely the reverse, regulators who didn’t believe in regulation, but who didn’t necessarily want the hassle of explicitly scrapping all the rules on the books and therefore encouraged their wards to find and exploit loopholes.
  • Mike’s right that such plans aren’t an obvious improvement on what went before. In fact, looking at his arguments in favor (”it’s a plus that consumers can directly manage their retirement finances”), one in general isn’t very impressed: there’s no reason to believe that consumers are particularly good at managing their retirement finances, and quite a lot of reason to believe that they can be extremely bad at it. That said, Mike’s right that there’s an air of historical inevitability to the whole thing. You might not like it, but it was bound to happen sooner or later.
  • So the only way this price can be reconciled with the press release is that Goldman simply folded in order to assuage public resentment of its recently announced $3.4 billion in quarterly profits. We don’t know Goldman’s initial offer price to repurchase the warrants, but the whisper number was that it was $400 million to $500 million. If the whisper number is correct — and who really knows? — Goldman just paid as much as $700 million to soothe public anger and buy goodwill.

    If that figure is on target, it is a very cheap price.

  • “This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”

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