Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Obama wants to spend tax money to “create” jobs in the sagging economy. [h/t Instapundit] He is clearly working from a Keynesian model in which government borrows saved money and hires unemployed people to do make-work. The employed people spend the saved money and the economy revives.
Seems like a good idea except that Keynes was wrong.
The hedge fund industry is coming under close scrutiny for a variety of reasons. In fact, it seems like that bad news doesn’t stop.
– Madoff runs a giant Ponzi scheme that claims up to $50 billion in losses. The exact amounts will be different because some of the “losses” represent paper profits on statements that he sent to customers that were phantom but assuredly they are large and painful
– Worse than this scheme was the fact that so many “fund of funds” or hedge funds that are comprised of investments in other hedge funds charged a big fee for the right to invest in this fund in the first place. Gulp
– Many funds that claimed they were “hedged” against market moves (where the “hedge” in hedge funds comes from) most assuredly were not; large losses of 40% or more are common in the listings, and some very big names have been seriously bruised
More subtle than these obvious issues are the fact that these hedge funds often have “high water” provisions. Funds typically make money by charging an annual fee of 2% a year and 20% of profits. However, if the fund declines in value, the hedge fund can’t charge the 20% fee on profits until after the old “high water” mark in value is reached. Thus if your fund was down 25% this year, you have to gain 33% before you can start earning your 20% cut again. On top of the “high water” issue, if your asset base drops 40% (remember those losses, above) then you are only making 2% on 60% of your former assets.
Yesterday, Joe Biden was holding forth on how the Obama administration will ensure that earmarks are kept out of the various economic-stimulus bills that the administration will be introducing.
It’s actually possible that he means what he says, as far as the traditional kind of earmark goes–that is, a provision for specific spending, in a specific geographical area, at the behest of a particular Congressman.
But in a broader sense, much of the economic policy of the incoming Obama administration seems to be centered around earmarks, albeit earmarks of a different kind. Instead of Congressional-district-based earmarks, we will have SIC-code-based earmarks (SIC code=standard industrial classification), providing benefits to particular industries, and reverse-bill-of-attainder earmarks, directed in favor of particular named companies or small groups of companies.
Traditional earmarks tended to politicize certain kinds of businesses, such as local construction companies. The new-age earmarks will tend to politicize all types of business, throughout the entire national economy. Your business success if you are an executive or business owner–your employment if you are a worker–your returns on investment if you are a shareholder or bondholder–will increasingly depend on the political rather than the business astuteness of company management.
In Goethe’s Faust, Mephistopheles desires the introduction of paper money. At his instigation, courtiers approach the emperor at a masked ball and get him to sign the following document:
To all it may Concern upon Our Earth
This paper is a thousand guilders worth
There lies, sure warrant of it and full measure
Beneath Our earth a wealth of buried treasure
As for this wealth, the means are now in train
To raise it and redeem the scrip again
In the bright sunlight of morning, the now-sober emperor observes hundreds of pieces of paper, each bearing his signature and claiming to be equivalent in value to gold, and demands to know what is being done to apprehend the counterfeiters.
Treasurer: Recall–Your own self signed it at the time,
Only last night. You stood in Great Pan’s mask
And with the Chancellor we approach to ask:
“Allow yourself high festive joy and nourish
The common weal with but a pen’s brief flourish.”
You signed: that night by men of a thousand arts
The thing was multiplied a thousand parts
So that like blessing should all accrue
We stamped up all the lower series too
Tens, Thirties, Fifties, Hundreds did we edit
The good it did folk, you would hardly credit.
Your city, else half molded in stagnation
Now teems revived in prosperous elation!
Although your name has long been widely blessed
It’s not been spelt with such fond interest
The alphabet has now been proved redundanct
In this sign everyone finds grace abundant
I missed the entire Republic Windows & Doors strike. [h/t Instapundit]. The laid-off workers apper to think they have a right to shake down the bankrupt company’s creditors in order to get their severance pay. It seems that Bank of America, by virtue of receiving the company’s physical assets as a result of its default, is now responsible for its workers.
Many people do not seem to have the idea that employers and employees are social equals in an economic partnership, but instead view employers as social superiors morally obligated to look after the welfare of their inferior employees. By virtue of giving someone a job, you acquire a feudal responsibility to look out for them for the rest of their lives.
[Note: There may be more to the story than the media, trapped as it is in their “heroic strikers” narrative, are willing to tell us. Anybody with more info please chime in.]