Economists continue to debate the extent to which free markets are truly efficient.
It seems to me that two things are certain:
free markets are remarkably efficient at …
1. accumulating wealth, and
2. consolidating power.
Beyond that, it seems to me that free markets are not that efficient at all.
As they say on Wait, Wait, Don’t Tell Me, “and now for some quotes from this week’s news.”
First, a delightful blog I discovered called The Big Picture by Barry L. Ritholtz. In a post titled The Underlying Basis of Finance and Credit, Mr Ritholtz observes:
Over the entire history of human finance, the underlying premise of all credit transactions — loans, mortgages, and all debt instrument — has been the borrower’s ability to repay.
Except for [the 5 year period from 2002 to 2007] the entire history of human finance was rather reasonable about the basis for making loans in general, and extending mortgage loans in particular.
For 99.9996% of the last 1.2 million years, loans were granted primarily on the condition of whether or not the lender believed that the borrower could repay. Between 2002 and 2007 this condition was dropped.
We are in the business of providing the material that prevents the commercials from all slamming together . . . that’s what we are doing here. That’s what we are doing on the West Wing set. We gotta deliver them twelve minutes of stuff to separate the Chevy commercials.
— Lawrence O’Donnell, Jr. Executive Producer of the The West Wing. Quoted in an NPR interview, January 2006.
I counted forty-two ads in last week’s episode of Lost. And that does not include any that aired before the show started or after the credits started to roll. Just forty-two ads in five breaks squeezed between six seven-minute segments of content. There were almost nineteen minutes of ads in a sixty-two minute time slot. That’s almost 30% of the air time dedicated to noise from advertisers.
Long term contracts and petty fees are everwhere.
When we moved to Princeton last year we signed up for Poland Springs water delivery. (Poland Springs is owned by that bottled water juggernaut, Nestle Waters.) They offered an inflexible monthly service plan of 4 bottles per month for $32.96, which was the best deal in their array of undesirable options. You can skip a delivery, but not a payment.
When the first bill arrived I was surprised to find a $2.00 fee for an Oil Surcharge. What? This is nothing more than a price hike disguised as a fee, hiding behind rising fuel prices. They are in the delivery business. Fuel charges are integral to their cost of doing business and should therefore be integrated into the price.
My biggest disappointment came when I set out to cancel the service due to a pending move to North Carolina. …
My new favorite podcast is Planet Money. As the economic turmoil has progressed from frightening to surreal, the NPR crew at Planet Money have done a wonderful job explaining the intricacies of the complex financial world in terms that are easy to understand.
Here is what I have been able to figure out so far. Forget about the subprime mortgage crisis. A huge part of the problem is these credit default swaps – to the tune of $55 trillion dollars. These “insurance policies” were not only taken out by people who lent money to protect themselves against potential loss. Financial gamblers were also taking out credit default swaps on other people’s loans! This is raw gambling. Some analysts estimate that for every CDF taken out to by a lender to protect a loan, ten other CDFs were sold by and for third parties on the same loan.
When it comes to land mass, Canada is slightly larger than the US — 3.9 million square miles in Canada vs 3.8 million for the US..
But when it comes to population and the economy, the is US much bigger. Consider this:
The difference between a productive day and a non-productive day is a sense of urgency. Today was a good day.