The new rules will help ensure that shareholders don't pay twice for corporate fraud. This investor double-whammy had become more common under recently departed chairman William Donaldson, who favored the media-pleasing sanction of hitting companies with ever-larger fines. The problem with these penalties is that corporate executives pay them with other people's money -- namely, from the business profits that belong to shareholders. So investors suffered both from the damage the original fraud did to their company's share price, and then they were expected to pay again for the SEC punishment.

Under the [new] rules, in cases where shareholders have been victimized -- either by fraud or by later fallout to the company -- the SEC will more likely pursue the individuals responsible for the fraud rather than hitting the companies. This has the virtue of holding individuals accountable. And it will send a message of restraint to an SEC staff that has used the lack of adult supervision at the agency to target business as a class for financial retribution. It's good to see the grown-ups back in charge.

Bill O'Reilly threatened to "get into" the "lives" of Bill Keller and Frank Rich of The New York Times because they are "the two main culprits" at the newspaper, which "routinely uses personal attacks to hurt people with whom it disagrees."

[JUAN]WILLIAMS: Well, I couldn't - I was listening to your -- your memo, your "Talking Points," and there you are threatening Bill Keller and Frank Rich. And I thought, what are you going to do to them if they engage in the politics of personal attack against the president?

O'REILLY: It's a good question, Juan. And I don't see it as a threat. I mean, I think you have to say to people, as we do with all our guests here, this is what's likely to happen. And if they continue, those people continue to attack people personally, as Frank Rich does almost every week, and Keller allows it, then we'll just have to get into their lives.

WILLIAMS: There's a new sheriff in town.

The French need to stop being negative, says President Jacques Chirac on Wednesday, assuming the role of cheerleader-in-chief after a rotten year in 2005.

The French leader said: "We must, I think, do away if possible with this foible of only seeing the negative, of spending our time in a sort of permanent self-flagellation.

"France is a great country and we have full reason to be proud of it. The world is changing around us and we have so many challenges to meet, and for that, we must first have confidence in ourselves."

Journalists from the Swiss current affairs magazine L'Hebdo...told swissinfo that the situation was calm – and had been for some weeks. "But the sense of frustration is still here. You have an explosive mix – a lack of work, a concentration of the most fragile members of society. It is very much a ghetto where, in contrast to France's much-vaunted image of integration, the most difficult social problems have been dumped," journalist Alain Rebetez told swissinfo.

Business reporter/columnist Gretchen Morgenson loves corporate scandals, and she rounds up the year’s greatest hits for an illustrated, above-the-fold story, “The Big Winner, Again, Is ‘Scandalot,’” for Sunday’s Business section year-end wrap-up.

“Same stuff, different year. That’s one way to look at 2005, the fourth consecutive year in which corporate chicanery loomed large….Greed was on display throughout 2005 as throngs of executives pocketed pay that was even greater than the previous year’s. To hear them talk, they deserved the amounts because -- are you sitting down? -- they enhanced shareholder value. Never mind that many of their companies’ stocks ended the year lower than where they began it.”

Speaking of corporations that had disappointing stock performances in 2005...

The New York Observer reports this week: “A year ago -- on Jan. 3, 2005 -- Times stock closed at 47.2. On Jan. 3, 2006, the stock was trading at a day’s low of 26.16.”

Does that mean that Times bigwigs like Publisher Arthur Sulzberger Jr. didn’t pocket any additional pay? Not exactly, says the Observer:

“According to Times sources, the yearly bonuses -- given to section editors and selected senior staff -- can be equivalent to 20 percent of their salary or even more. Mr. Keller’s memo informed the senior staff that the 2005 bonuses, which will be issued in February, will be lower than the potential maximum. So the real surprise to staffers was, instead, the generous holiday handouts on the paper’s 14th floor. In addition to [Times chief executive Janet] Robinson’s 74,000 shares of free Class A stock, publisher Arthur Sulzberger Jr. received 30,000 shares, worth a bit less than $800,000, plus stock options worth about $4.1 million….The news of executive stock gifts rankled some Times newsroom staffers, who are still smarting from the paper’s layoffs, hiring freeze, reduced expense policy and -- most galling -- the cancellation in December of The Times’ 15 percent discount for employees on stock purchases.”

So, corporate executives got rich while the (relatively) poor employees lost ground or were laid off?

It’s a safe bet that this is one expose of a seemingly heartless corporation that won’t be appearing in the New York Times anytime soon.

...its easy to hold down health care costs if you do what Canada does: withhold medical treatment from sick and injured people. The U.S health care system could save billions of dollars if we drastically reduced the number of doctors, hospitals, outpatient clinics, medical devices and diagnostic machines available. If we followed Canada's lead, we would severely limit each surgeon's allotted hours in the operating room so that they couldn't perform too many surgeries. Americans would wait months and years for critical medical tests and treatments - many would suffer greatly, become crippled, addicted to painkillers, go blind or die while waiting - however, the country would spend a lot less money on health care.

Update... Reader Art Patten responds:

I'm moved by the ghost of Albert Marshall (or better yet, Carl Menger) to respond to the Stuart Browning quote you posted. If the Canadian government regulated health care markets by pushing on the supply lever, then prices for medical services should rise, all else equal. Taking a closer look at this, you can see how many holes-in-the-dyke a government must poke its fingers into in order to control a market.

First, it must set prices (in this case, through the imposition of fee schedules). This kind of measure is deceptively tempting to any politician or regulators who has no grasp of either market calculation or agency theory. To enforce the existence of unrealistic and unresponsive pricing structures, a government must also significantly restrict the existence of competing markets (in this case, by limiting the ability of consumers and providers to enter into private, two party agreements). In doing so, it effectively restricts and controls demand by limiting the choices available to consumers, thus removing most of the incentive for bringing additional supply to market.

Taken from this standpoint, shrinking supply is seen as a second order effect of government regulation, rather than a primary policy mechanism. This also jibes better with economic theory, and it beautifully illustrates how costly it is to socialize healthcare markets, i.e. to continuously combat the effective interaction of price, supply, and demand.

P.S. This issue is alive and well in the U.S., as Skip Oliva can attest. It takes some real cajones for a medical provider to circumvent the gargantuan Medicare-ICD-CPT matrix.

I was thinking in marginal terms rather than aggregate consumption. After reading the rest of Browning's piece, I see that he's referring to Krugman's attack on higher per capita medical spending in the U.S. (bubbles always being in the eye of the beholder). It's an interesting comparison, but Krugman as usual did it no justice.

After a second look, I see that my criticism is off base. Because we're talking about third party payment systems, demand can be assumed to be inelastic. Thus, when the price of a medical service is fixed below the market clearing rate, it's the supply curve that shifts inward. The primary lever is not supply or demand, but price, and restricting competing arrangements can be thought of as another aspect of price control. However, it's the supply curve that responds by shifting, not the demand side. The latter will simply absorb whatever it can get from the powers that be.

As Browning's analysis demonstrates, an economist worth his salt is expected to actually dig into the underlying distribution characteristics of per capita consumption and population demographics before rendering judgement. As Mel Brooks might say, "It's good to be [a] pundit." What is so disconcerting about Krugman and his sycophants is their eagerness to stamp punditry with the imprimatur of advanced economic theory.

...the median price per square foot for all Manhattan apartments reached a high point in 1987, at $305 a square foot for co-ops and $413 a square foot for condos...

Prices bottomed out by the mid-1990's, losing about 44 percent of their value in real terms, and then they started to rise again. By 2002, prices had passed their 1987 levels, measured in inflation-adjusted dollars and by the first six months of 2005, the median co-op price was up 37 percent from 1987, while the condo price was 35 percent greater.

Averaged across the entire period, the cost of a Manhattan apartment has risen at a rate of about 2 percent a year above inflation....

Would granting Wal-Mart its ILC [banking license] status impose an unnecessary financial risk on the soundness of the banking system? The Community Bankers lobby warns that "Wal-Mart's entrance into banking would constitute a dangerous over-concentration of economic power that would skew market forces." What clearly undermines this argument is that in every other consumer market that Wal-Mart has entered, from hardware services to selling gas at the pump, the impact of its gaining market share has been to reduce prices, not to raise them. Studies have found, for example, that in neighborhoods where Wal-Mart has entered the grocery business, its prices range from 8% to 27% below those charged at the incumbent grocery chains. Moreover, if there were a repeat of the kind of bank failures we witnessed in the late 1980s, financially sturdy Wal-Mart would be far less susceptible to the risk of closure (and FDIC deposit insurance payments to depositors) than small and less capitalized community banks. It's always possible that Wal-Mart will fall on its face in banking. We suspect, however, that what really spooks the banking industry is the threat of more competition, more convenience and lower prices for financial services. But that should be welcome news to members of Congress and the regulators at the Federal Reserve Board and the FDIC if they truly care about the welfare of the banking consumer.

Did you catch this in Paul Krugman’s latest? Writing about the "housing bubble," Krugman said: “In the Zoned Zone [the coasts], by contrast, buildable lots are scarce, and house prices mainly reflect the price of those lots rather than the cost of construction. As a result, house prices in the Zoned Zone are much less tied down by economic fundamentals than prices in Flatland.”

I seem to remember that in the first few weeks of econ 101 in school we covered the fact that scarcity of a good tends to make its price higher. I can’t think of anything more “fundamental” in economics. Apparently, Krugman has forgotten this. Or he somehow thinks that buildable property is not affected by “economic fundamentals”.

Funny how when US GDP figures come out, there is always a mention of the sluggish job market or high energy prices. Words like "mild", "slight" and "modest" riddle the page of US GDP numbers, which for the last couple years have been running at consistently high levels above 3% annualized.

Yet here is a little article by the Associated Press on France's 0.7% growth. Littered with words like "accelerated", "rebound", "lift" and "expanded".

I swear that such news in America is never only one or two paragraphs long, like this, because it seems that someone cuts and pastes another three paragraph diatribe on any economic numbers that could be "read into" as bad.

I am surprised they even mentioned "an anemic second quarter". How did that get through editing? ;)

The 0.7% figure for France is unannualized third quarter growth. Year over year growth was 1.8%.

Abstract:
The 1987 film Wall Street is one of the most popular films dealing with business, and for many people provides an enduring image of capitalism. The film is therefore a good illustration of filmmakers' portrayal of business, and how this portrayal can influence public perceptions and misconceptions. This is important as public misconceptions of business, in turn, can contribute to the regulatory environment. This article discusses the view of business presented in the film, contrasts this view with an alternative, and more realistic, narrative, and shows how the film may have influenced subsequent regulation.

This year I will be modest about what government can do. I know that economic prosperity comes not from government programs but from entrepreneurial inspiration. Adam Smith was right when he said, "Little else is required to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice." As a government official, I am not going to promise more than I can deliver. I am going to focus my attention on these three goals -- peace, easy taxes, and a tolerable administration of justice -- and I am going to trust the creativity of the American people to do the rest.

...I have had unusual difficulty getting a better explanation for readers, despite the paper's repeated pledges of greater transparency.

For the first time since I became public editor, the executive editor and the publisher have declined to respond to my requests for information about news-related decision-making. My queries concerned the timing of the exclusive Dec. 16 article about President Bush's secret decision in the months after 9/11 to authorize the warrantless eavesdropping on Americans in the United States.

I e-mailed a list of 28 questions to Bill Keller, the executive editor, on Dec. 19, three days after the article appeared. He promptly declined to respond to them. I then sent the same questions to Arthur Sulzberger Jr., the publisher, who also declined to respond. They held out no hope for a fuller explanation in the future.

In late April 2005, the Gallup organization released poll results showing that exactly 50% of those polls answered "yes" to the question "Do you think the Bush administration deliberately misled the American public about whether Iraq has weapons of mass destruction, or not?" The poll had a margin of error of +/- three percent. Earlier in April, a similar poll had only 48% of respondents answering "yes" to the same question. According to Gallup, the uptick in those numbers over time came almost exclusively from registered Democrats, and was tied to a general decline in President Bush's approval ratings among Democrats. Since April, Gallup has asked the same question several more times. The result never reached above 53%.

You seem to have referred to this poll in eight columns dated from April 25 through December 30. In your first two references, on April 25 and June 24, 2005, you noted the poll's 50-50 result on this question. As time went on, however, your characterizations became stronger. On July 1 and August 1, you said that a "majority of Americans" believed the Bush Administration deliberately misled the country. On August 21, you said that "strong majorities" held this view. In September 23 and November 4, you returned to the formulation "majority of Americans," but on December 30, you shifted all the way to saying that "most Americans" believe this.

I will grant you that "50% plus 1" constitutes a majority. But can you please direct me to the sources from which you derived your statements on August 21 and December 30 that "strong majorities" and/or "most Americans" share your views?

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Monday, January 02, 2006

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