Economics & Finance

The Laissez-Faire Left

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Historically, one cannot find more passionate and consistent defenders of laissez-faire capitalism than most leftist, articulate intellectuals.

Throughout the last two centuries, leftists fought ardently to protect the freedom of producers to create and sell as they thought best, and the right of consumers to purchase the products they thought best served their needs, without fear of government coercion or even informal social sanction. Whenever the unenlightened or economically naive threatened the voluntary choices of producers and consumers, leftists have always been the first in the fight to protect this most basic of human economic rights: the right to choose what one creates and the right to consume what one wishes.

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Power… and the naive

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Two frequent topics intersect in this Wall Street Journal article from today, October 29th titled “Power Firms Grapple with Tough Decisions”. The topics are 1) journalists that don’t understand what they are writing about 2) the impossibility of improving our US infrastructure in today’s legal and regulatory climate.

The journalist writes that “A year ago, it looked as if 100 coal-fired plants might get built.”

Only an incredibly naive person who didn’t understand anything about the history of the US energy industry would have assumed for an instant that ONE HUNDRED coal-fired plants could possibly be built in the US. Let’s sum up the power situation for you:

1) NUCLEAR – great, unless you worry about storing the radioactive waste
2) HYDRO – great, unless you love fish and babbling brooks
3) COAL – great, unless you worry about global warming
4) NATURAL GAS – great, unless you are paying the bill
5) SOLAR – great, unless you need power on peak and the sun isn’t shining
6) WIND – great, unless you don’t like the way they look, slice birds, and the fact that they are unreliable on peak

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Investing Here and Abroad

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Recently I was reviewing the performance of the (small) trusts that I manage for my nieces and nephews. The site www.trustfundsforkids.com contains the performance and stock selections for each of the three portfolios if you are interested (not plugging it for cash… no advertisements there).

A friend of mine said that I had beaten the relative benchmarks in my fund performance and I was feeling pretty good about myself. However, I realized that the benchmarks that we are commonly using, the NASDAQ and NYSE, didn’t really apply because so many of the stocks that I selected were foreign companies – thus the relative benchmarks would be the high-flying international indexes where my performance would be comparatively… retarded, to use a politically-incorrect term.

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“Eating Your Own Dog Food”… or not

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There is a common business phrase called “Eating your own dog food” which basically says that you are using the same systems, products or processes as your customers. In this sense you are in the same situation as your customer, taking the same risks, and suffering the same negative outcomes (should they occur). This behavior generally aligns the interests of the company with that of its customers.

Recently collateralized debt obligations have been in the news. These products were created by Wall Street firms and then pitched to their customers as low-risk ways to get a higher return than traditional “vanilla” bonds, CD’s and T bills. A number of asset based mortgages, for example, were grouped into a single security and sold in “tranches”, with each tranche having different risk characteristics and corresponding returns.

Unless you don’t have access to media of any type you’ve probably heard about the great credit crunch that is occurring right now. Many CDO’s are stuck in the pipeline of the various companies or off-balance sheet entities that were selling them because demand dried up overnight; those that are already sold are being re-rated by the debt rating agencies at much lower credit levels (one recently fell all the way from “AAA” to “junk” in a single swoop) causing many customers and many Wall Street firms to swallow big losses.

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Notch Up Another One

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3 Americans Awarded Nobel in Economics — and one of them is “Roger B. Myerson, a professor at the University of Chicago …”

This makes, what, about 900 of our guys?

UPDATE: U of C News Office release here.