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The Curious Capitalist
Commentary on the economy, the markets, and business
Most Popular Posts on The Curious Capitalist
  1. Google and China's Future
  2. Does Michael Lewis' Harvard…
  3. How to drive down health-ca…

Google and China's Future

Posted by Michael Schuman
March 22, 2010 at 5:59 am
8 Comments

Google's dispute with the Chinese government has taught us a lot about modern China. The disagreement was sparked by the company's January decision to stop filtering Internet searches by its Chinese users and could lead to the closure of Google's Chinese search engine, or perhaps an even more drastic withdrawal from China. (An announcement from Google could come this week.) The case has exposed the myth that China is a great place to do business for foreign companies. Google's step also moves China closer to having a “different” Internet than the rest of the world, one dominated by Chinese companies and policed by the Chinese government.

China's leadership doesn't appear to care much about the impact of Google's possible departure. But should they? The Google case begs a fundamental question about China's future:

Is there a connection between human rights and economic progress?

Read More…

          

Does Michael Lewis' Harvard Thesis Exonerate Goldman?

Posted by Stephen Gandel
March 20, 2010 at 1:49 pm
11 Comments

Back in December, the New York Times ran a story about Goldman and some collateralized debt obligations they underwrote. Turns out the CDOs, which were constructed by pooling together other bonds, performed badly. Really, really badly. The thrust of the Times piece was that Goldman routinely created CDOs with the worst mortgage bonds it could find, and then bet against them. Goldman and a few hedge funds pocketed billions when the CDOs failed, while Goldman's clients who bought the CDOs endured huge losses. Goldman, of course, has denied all of this.

Few think Blankfein & Co. are innocent, but a report that is getting a lot of attention lately because of Michael Lewis' new book The Big Short offers some fodder for Goldman's side of the story. Here's why:

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How to create jobs

Posted by Barbara Kiviat
March 19, 2010 at 8:30 am
3 Comments

I've gone on and on about how not to create jobs. In the cover story of this week's Time, I explain what will work. The piece begins:

Later this year, a marketing manager will sit down for his first day of work at HomeAway, a company that helps people rent their vacation homes online. In the firm's sleek Austin, Texas, headquarters, a glass-wrapped building decorated with travel souvenirs, the marketer will flip on his computer and do his job — a job no one has done before. This, you see, will be a brand-new job, one of the most coveted commodities of economic recovery. How this job will come to exist is at the heart of the most pressing problem in the economy today.

You can read the entire story here, although I strongly recommend checking out the paper copy because there are some fantastic infographics by Lon Tweeten that haven't made their way online.

UPDATE: And here's a video by Craig Duff.

          

Related Topics: jobs ,

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How to drive down health-care costs: treat people like dogs

Posted by Barbara Kiviat
March 18, 2010 at 1:29 pm
10 Comments

There's a piece by a veterinarian in the current issue of Newsweek that makes the case for structuring the human health-care system more like the one we have for animals. That doesn't sound like a completely ridiculous idea to me.

Read More…

          

Related Topics: health care , , ,

Congress passes a jobs bill. Good for it.

Posted by Barbara Kiviat
March 17, 2010 at 7:41 pm
8 Comments

From the LA Times:

The Senate today passed by a 68-29 margin a $17.6-billion measure intended to spur hiring nationwide, sending the bill to the White House for the president's expected signature... The bill would grant employers an exemption from their 6.2% Social Security payroll contribution for every new employee hired through the rest of the year, as long as that employee had been out of work for at least 60 days. An additional $1,000 income tax credit would be allowed for every new employee kept on the payroll for 52 weeks... The measure also would make it easier for businesses to write off equipment purchases and would pump billions into federal highway and mass-transit funding programs, which Democrats hope will jump-start construction projects.

I've said in the past that I'm dubious about how far such efforts will actually go towards creating jobs. Plenty of other people have too. Private enterprise is the great American job-creation machine. The best thing Congress can do at this point is get out of the way—and getting out of the way includes making a decision (any decision, for crying out loud) about what health care will look like going forward.

Though that's not to say there aren't job-related topics I want our federal government to address.

Read More…

          

Related Topics: jobs ,

What Caused the Financial Crisis? Still 22 Possibilities

Posted by Stephen Gandel
March 17, 2010 at 6:25 pm
17 Comments

The head of the Financial Crisis Inquiry Commission, Phil Angelides, stopped by the office this morning. I think the idea of this commission is a very good thing. I continue to feel that something wrong happened in the run up to the financial crisis that was not just the result of a group miss-think but actual bad actors, and without a commission with subpoena power to get to the bottom of things it is likely that we will never have real regulatory reform and will probably start seeing CDOs of CDSes (you don't want to know what these things are, but look it up if you like) again real soon.

But Angelides' visit underscored just how hard his job is. Here's why:

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Pressing China on the Yuan Won't Work

Posted by Michael Schuman
March 17, 2010 at 2:55 am
7 Comments

In yet another attempt by the U.S. to force China to change its currency regime, senators on Tuesday introduced legislation that would require the government to impose duties on goods from countries that don't address currencies deemed to be misaligned. In other words: China. The bill follows a war of words between the U.S. and China in recent days over the value of the Chinese currency, the yuan, which the senators only managed to fuel further. Sen. Debbie Stabenow said China's currency practices were equivalent to “cheating,” while Sen. Sam Brownback promised that if China didn't take corrective action, “we're going to force them."

The new bill clearly shows how politicized the yuan has become and the growing anger China's currency policies are creating around the world. Many U.S. politicians and economists believe China purposely sets the yuan at an artificially cheap level to promote its exports at the expense of those from other economies. Though that may or may not actually be the case, Beijing is nonetheless a big, fat political whipping boy, an easy target for Americans worried by high unemployment and an uncertain recovery to blame for the country's economic woes.

But the problem is that such efforts by the U.S. to pressure China to reform the yuan simply won't work, and may actually hurt, not help, the U.S. economy. Here's why:

Read More…

          

Related Topics: china, economic development, manufacturing, trade 

Are sovereign debt crises inevitable?

Posted by Michael Schuman
March 17, 2010 at 2:09 am
9 Comments

Thanks to the ongoing debacle in Greece, we've become all too aware about the dangers of the rapid build-up of government debt throughout the developed world in the wake of the financial crisis. The potential consequences of that trend are made ever more frightening in a new study by economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University (authors of the book This Time is Different: Eight Centuries of Financial Folly). They conclude that there is a “strong link” between banking crises and sovereign defaults. In fact, they state, banking crises can help predict sovereign debt crises. Their study spans two centuries and 70 countries, in both the developed and developing world, and makes for some nail-biting reading. Here are their main conclusions:

First, private debt surges fueled by both domestic banking credit growth and external borrowing are a recurring antecedent to domestic banking crises…Second, banking crises (domestic ones and those in international financial centers) often precede or accompany sovereign debt crises. Third, public borrowing accelerates markedly and systematically ahead of a sovereign debt crisis (be it outright default or restructuring).

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Related Topics: bailouts, economics, fiscal policy, recovery 

The Fed To Stop Buying Mortgages

Posted by John Curran
March 16, 2010 at 6:40 pm
3 Comments

The Fed is maintaining the status quo on interest rates, is not terribly worried about inflation and is still planning to end its massive buying program of  mortgage securities at the end of March. All of this comes from a Fed statement following the Tuesday meeting of its policy committee. The news on interest rates sent the stock market higher as investors breathed a sigh of relief that interest rates will stay near zero. Nobody, for now, seems too concerned about the other part of today's message, that the $1.25 trillion buying program that has been underway is soon to end.

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Related Topics: economy 

Long Live The Fed

Posted by Stephen Gandel
March 15, 2010 at 4:52 pm
3 Comments

Senator Chris Dodd, the head of the Senate Banking Committee, is out this afternoon with his proposal for an overhaul of financial regulation. The big headline is that the bill gives more power to the Federal Reserve--a lot more. There was a time in the months following the financial crisis where there seemed to be a strong movement from both the left and the right to restrict the power of the Fed. Even Dodd was for a smaller Fed. But now it looks like the Fed's role is expanding, not shrinking (emphasis mine).

Consumer Protections with Authority and Independence: Creates a new independent watchdog, housed at the Federal Reserve, with the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices.

Giving more power to the Federal Reserve is not my ideal solution, but it is better than what we have. And you can argue that Dodd didn't go far enough in centralizing power at the Federal Reserve. Here's why:

Read More…