Tag Archives: Perverse Incentives

Bill Bonner: It’s a Mad, Mad World… and Getting Madder

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“Want to make beaucoup money? Start a company. Borrow money. Buy your own shares.  Everybody does that, right?  But our innovation is this: Buy your own products too!  Raise $1 billion by selling bonds to the public. You have no credit and no credibility? No worries. The companies that have done best lately are those with the worst credit.  You have to pay $40 million in annual interest. But you take the $1 billion and use it to buy your products (whatever they are). Your company shows sales of $1 billion. Then, if your shares sell for 20 times earnings (modest for a tech company), the capital value of your company will soar by 20 x $400,000,000 = $8 billion!  Sound crazy?”

http://www.bonnerandpartners.com/its-a-mad-mad-world-and-getting-madder/

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Bay Area city approves $13 minimum wage, to be California’s highest

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“Businesses that pay less than 800 hours of employee wages over a two-week period will be exempt from the rules but must still pay the state minimum wage.  Richmond businesses that ‘derive more than 50 percent of their income from transactions where the point of sale is outside the city’ will be forced to pay an ‘intermediate wage,’ defined as halfway between the city’s minimum wage and the state minimum wage.  Seattle recently raised its minimum wage to $15 by 2017, which would be the nation’s highest. San Francisco’s $10.74 minimum wage is currently the state’s highest.  The new law will phase in the minimum wage hike over several years, increasing to $13 in 2018.”

http://www.dailynews.com/government-and-politics/20140605/bay-area-city-approves-13-minimum-wage-potentially-californias-highest

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When parents pay for college, student debt becomes a family affair

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“Their collective student debt bill quickly grew to more than $500,000. Two of their children have managed to pay off their debt since graduating, but the couple is still strapped with more than $150,000 worth of loans and will add more to their load when their youngest son graduates next year.  Although their loans are federal and they have the option to apply for an income-based repayment plan, the Shippens were told their combined income was too high to qualify.  College costs have increased by nearly 30% over the last five years alone.  Nearly 30% of the 38 million federal student loan borrowers in the U.S. today are between 40 and 59 years old.”

https://finance.yahoo.com/news/student-debt-nearly-destroyed-this-family-s-finances-150749696.html

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Economy Tanks … and Stocks Soar?

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“Negative 1 percent.  That’s how much the U.S. economy managed to ‘grow’ in the first quarter, according to the government’s revised estimate.  After more than $800 billion in stimulus spending from Washington.  After more than $3 trillion of QE from the Federal Reserve.  After six-plus years of record-low interest rates … record levels of monetary intervention in the U.K., Japan and Europe … and the biggest bailouts in the history of the world.  It’s much worse than the 0.1 percent gain the Commerce Department originally reported. It was twice as bad as the 0.5 percent decline economists were expecting. And it’s the worst reading since the first quarter of 2011.”

http://www.moneyandmarkets.com/economy-tanks-and-stocks-soar-61680

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Mexican pot farmers give up, switch to supplying heroin to pill addicts

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“With the wholesale price of marijuana falling — driven in part by decriminalization in sections of the United States — Mexican drug farmers are turning away from cannabis and filling their fields with opium poppies.  Mexican heroin is flooding north as U.S. authorities trying to contain an epidemic of prescription painkiller abuse have tightened controls on synthetic opiates such as hydrocodone and OxyContin. As the pills become more costly and difficult to obtain, Mexican trafficking organizations have found new markets for heroin in places such as Winchester, Va., and Brattleboro, Vt., where, until recently, needle use for narcotics was rare or unknown.”

http://www.washingtonpost.com/world/tracing-the-us-heroin-surge-back-south-of-the-border-as-mexican-cannabis-output-falls/2014/04/06/58dfc590-2123-4cc6-b664-1e5948960576_story.html

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Bill Bonner: This Hugely Popular Investment Is About to Blow Up

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“In a normal world, savers have the choice of staying in cash or quasi-cash and receiving a fair rate of interest. No more. The interest they receive on a 10-year Treasury note is barely over 2.5%. But the real rate of consumer price inflation – according to the most exhaustive survey, done by the MIT, the Billion Prices Project – is 3.91%.  What kind of world is it where an honest householder loses nearly 1.5% a year on his savings? It is an odd, rigged-up and dangerously windy one.   Investors are stretching out their sails to get higher yields. As a result, bond prices have gone up, reducing yields on bonds rated CCC – below investment grade – to the lowest levels ever recorded.”

http://www.bonnerandpartners.com/this-hugely-popular-investment-is-about-to-blow-up/

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Bailout Banks Made Riskier Loans: Study [2011]

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“The government bailout made banks appear safer but actually caused them to take on more credit risk, according to a University of Michigan study released Wednesday. According to a working paper by finance professors Ran Duchin and Denis Sosyura of the university of Michigan’s Ross School of Business entitled Safer Ratios, Riskier Portfolios: Banks’ Response to Government Aid, banks participating in the government’s Capital Purchase Program as part of the Troubled Assets Relief Program, or TARP, ‘significantly increased their investments in risky securities,’ by 10%, ‘displacing safer assets, such as Treasury bonds, short-term paper, and cash equivalents.'”

http://finance.yahoo.com/news/Bailout-Banks-Made-Riskier-tsmf-3581730230.html

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Google, once disdainful of lobbying, now a master of Washington influence

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“Nine years ago, the company opened a one-man lobbying shop, disdainful of the capital’s pay-to-play culture.  Since then, Google has soared to near the top of the city’s lobbying ranks, placing second only to General Electric in corporate lobbying expenditures in 2012 and fifth place in 2013.  This summer, Google will move to a new Capitol Hill office, doubling its Washington space to 55,000 square feet — roughly the size of the White House.  Google’s increasingly muscular Washington presence matches its expanded needs and ambitions as it has fended off a series of executive- and legislative-branch threats to regulate its activities and well-funded challenges by its corporate rivals.”

http://www.washingtonpost.com/politics/how-google-is-transforming-power-and-politicsgoogle-once-disdainful-of-lobbying-now-a-master-of-washington-influence/2014/04/12/51648b92-b4d3-11e3-8cb6-284052554d74_story.html

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Uruguay’s New Regs: Unreasonable on Purpose?

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“Uruguay is now in the business of fixing prices for an entire industry. In fact, this can only lead to a renewed black market. If Uruguay continues along this path it probably won’t much reduce black-market trafficking because the black market will supply a similar and even better product at a lower price without demanding that people sign some sort of public document attesting to their use of the drug. The whole point of this exercise supposedly was to remove the criminal influence from the production and ingestion of cannabis. After beginning splendidly, Uruguay officials have acted in a way that reverses most of the benefits that could have been expected from ‘legalization.'”

http://www.thedailybell.com/news-analysis/35290/Uruguays-New-Regs-Unreasonable-on-Purpose/

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Arson charges brought after accidental hash oil homebrew explosions

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“Colorado’s constitutional amendment that legalized marijuana allows adults 21 and older to ‘process’ the drug. But prosecutors in some cases, including Braithwaite’s, have charged alleged hash oil cookers with ‘processing or manufacturing marijuana and marijuana concentrate’ through a different law. Colorado lawmakers Tuesday gave final approval to bills that tackle two other marijuana issues that have raised concern in recent months. The second requires the state to limit the potency of store-sold edibles and hash oil (also known as dabs, shatter or wax).  Producing hash oil at home is about 50% cheaper than buying it in stores.”

http://www.latimes.com/nation/la-na-legal-brewing-hash-oil-colorado-explosions-20140506-story.html

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