Finance Geek

There is a widespread tendency among the advocates of capitalism to believe that when the government regulates one’s own house, that is wrong and an intolerable outrage, but when it regulates the neighbor’s house, that is a necessity, for everyone else is clearly in dire need of regulating. What would the rest of the world do without our benevolent omniscience?

The marketplace is composed of a veritable jungle of goods and services, including novel financial products. Some of these products are unique, possessing properties that must be appreciated apart from nominally similar assets. The notion that a centralized authority can successfully issue one-size-fits-all valuation methods is as preposterous in the realm of financial products as it is in the realm of art or real estate. The imposition of fair value accounting rules—or any accounting rules—by the government or its delegates should therefore be regarded as wrong and dangerous.

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Several years ago New Jersey attempted to solve its persistent budget problems with a tax increase on those making more than $500,000 a year. But since Jersey still has budget problems, Gov. Jon Corzine recently proposed targeting a new group for a major tax increase: households earning $150,000. In high-cost Jersey, where a construction worker married to a nurse might be a $150,000 a year household, about 15 percent of all families will see taxes rise under the governor’s new proposal to eliminate their property tax deductions. These folks already pay more than two-thirds of the state’s income taxes and that proportion is going up—maybe way up.

What’s happening in New Jersey is not unique. Just months after a presidential campaign in which Barack Obama argued that he intended to make the wealthy pay their ‘fair share’ of taxes, politicians across the country are scrambling to balance their budgets by focusing on higher-income earners. But in doing so they are also redefining downward who constitutes the wealthy. Upper-middle and even middle class taxpayers are finding out that when politicians say they are coming after the rich, they don’t really mean just the rich.

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Will solutions to the present economic crisis come from the wisdom of crowds or from the wisdom of experts? Not to belittle the serious philosophical differences among expert economists, but the consensus among them is often neglected in the media’s need for combative narratives. Perhaps the best growth ideas will come not from crowds nor from experts, but from a crowd of experts.

In late February, we convened a forum of economics bloggers and journalists at the Kauffman Foundation, which included a survey. Well-known bloggers like Matt Yglesias, Tyler Cowen, Robert X. Cringely, and Mark Thoma participated alongside distinguished economics journalists such as Amity Shlaes and David Warsh. The full results are published today at kauffman.org.

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Financial and tech stocks lead the market higher. The major indexes have their best month since 2002; first-quarter losses are trimmed substantially. Home prices are still falling. The rally faces big hurdles.

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The automakers are trying to reassure worried consumers who have put off buying new cars because of the threat of unemployment.

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Tim Geithner’s plan to get toxic assets off bank balance sheets should help strengthen SOLVENT financial institutions, Nouriel Roubini of RGE Monitor says. But banks that fail stress tests (a.k.a., insolvent ones) should be seized, restructured, and sold.

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Unemployment is currently rising like a rocket, because businesses that normally would be expanding and hiring are not, and those businesses that would normally be contracting and shedding workers are doing so very rapidly. Businesses that ought to be expanding and hiring cannot, because the depressed general level of financial asset prices prevents them from borrowing money or selling bonds on profitable terms.

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In the stock market, crashes can happen in hours or even minutes.  In the housing market, crashes take months and years.  Homeowners with their houses on the market, don’t just get up one morning, smell the coffee and decide to reduce their asking prices by forty percent.  It takes time for people to recognize that a bubble has burst, and plenty of sellers never do.  They just sit on their homes for years until the market turns around. 

As we are in the midst of the slowly unfolding collapse of the greatest housing price bubble in the short history of well recorded housing prices, each month’s data brings little change.  Instead, month after month, we got the slow wheeze of a bubble bursting.  The January 2009 Case-Shiller house price data, released this morning, by Standard and Poor’s looked a lot like last month’s data. The decline between November and December for the composite 20 index was 2.6 percent; the decline between December and January was 2.8 percent.    Don’t get excited by the fact that last drop was a little higher: those numbers are essentially indistinguishable. 

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From paidContent.org, March 31, 2009: A couple of weeks ago, we ranked digital-media
CEOs by the size of paychecks. But many of these titans derive most of
their wealth not from salary, bonus or options, but from their holdings
in the companies they ru

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NYU professor Nouriel Roubini, you’ll recall, is known as “Dr. Doom,” the most famous of the handful of economists who actually predicted the current debacle. A few days ago, after a speech in Italy, he was quoted as saying he might see some &qu

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From Clusterstock.com Outgoing GM Chief Rick Wagoner is set to walk into the sunset with a $20 million payout, according to Michelle Leder’s analysis of GM’s filings.Well that has to ease the sting of getting personally fired by The President of the

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Last October, Google reached a $125 million settlement with book publishers and authors concerning its massive book-scanning project. The deal awaits final court approval, and one party nudging itself into the arena is an internet-issues oriented group from New York Law School. Fair enough. But what does raise an eyebrow is their sole source of funding in this matter: Microsoft.

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NEW YORK (Reuters) - Google is forming a $100 million fund to invest in early-stage start-up firms.

The fund, to be called Google Ventures, will be wholly owned by Google, but will operate as a separate entity and will seek investment opportunities to maximize returns rather than looking for investments that strictly fit with Google’s strategic vision.

Rich Miner, a co-founder of Android smart phone software that Google acquired in 2005, and Bill Maris are the fund’s two managing partners.

Earlier this month, Reuters reported that Miner appeared at an investor conference for Internet start-up companies with a name tag that listed his name alongside Google Ventures.

Miner said on Monday that Google Ventures will look at a wide variety of companies to invest in, including consumer Internet products, information technology, health care and biotech, among other areas.

“Just as we were founded by entrepreneurs, we think we can help some of those next entrepreneurs with the next great idea,” said Miner.

Google Ventures has already invested in Pixazza, an photo-based online marketing service and Silver Spring Networks, a company that uses technology to improve the efficiency of power grids.

Google has invested in other companies in the past through its philanthropic division, Google.org. While Google.org may continue to make investments from time to time, Maris said that Google Ventures will now function as Google’s “primary vehicle” for making venture-style investments.

Several high-tech companies have in-house venture capital arms, including Intel and Motorola, But Maris said that Google Ventures will have more in common with traditional venture capital firms.

“We’re making financial return our first lens,” said Maris. But he noted that a part of the appeal of Google Ventures for start-up firms is the relationship to Google and its 20,000 employees.

The fund will focus primarily on companies seeking seed funding and early stage funding, and Google Ventures will have the ability to make investments ranging from tens of thousands to “several tens of millions” of dollars, Maris said.

(Reporting by Alexei Oreskovic; Editing by Derek Caney)

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The folks at Chinwag were kind enough to ask me to chair a panel on the topic of freeconomics last night.  I’ve written extensively about ‘free’ as a business model extensively before, but to recap the argument for free is that more and more goods are being delivered digitally, the marginal cost of delivering a digital good is $0 (or pretty close to it), and that in a competitive market over time the price of goods trends towards the marginal cost of distribution.  Hence digital goods should be free to consume and companies will have to make money from advertising or by selling related goods - e.g. bands give away their music for free and make money from gigs and t-shirts.

The counter argument is that the only reason we have gotten used to getting stuff for free on the web is because VCs and large corporates have subsidised those services in a rush for market share, and that for most companies you can’t make enough money from advertising, or the other areas to make the free business model work - so it is unsustainable and we will all have to get used to paying again.

For the most interesting/surprising thing to come out of the discussion was a much greater degree of willingness to start paying for services than I had expected.  A lot of that was couched in terms of ‘if there was no free alternative I would pay’ which of course begs a very large question, but it will be intertesting to see what happens when people are actually asked to start paying, because I think they will be.  Subsidies from VCs and large corporates are drying up, if they haven’t run out already, and despite the fears of what it might do to their businesses I expect many companies to start experiementing with charging more aggressively.

The other takeaway that I hadn’t considered fully is that for many services in reality the marginal cost of delivery is not zero.  This was made most forcefully by panelist Alan Patrick, but also by panelist Bruce Daisely of YouTube who made the point that the worlds favourite video service now accounts for 10% of total bandwidth consumption - which I’m sure costs Google a lot of money.  This point knocks a sizeable whole in the ‘free’ argument, although ‘free’ fans would argue that these costs are going down all the time.

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Industrial Policy: The U.S. government dictating a major corporation’s merger partner and who its CEO should be was unimaginable a year ago. Has industry sold America’s free-market soul for bailout money?

A president of the United States orders the chief executive officer of General Motors to resign. The same president is further ordering Chrysler to merge with Fiat, the Italian firm specializing in flimsy cardboard boxes on wheels.

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