Well, the new meme on the Left in favor of higher minimum wages seems to be that since many minimum wage workers also receive government benefits, those benefits "subsidize" the employers paying minimum wage. Example from Kevin Drum here. This is utter madness. A few responses:
The implication is that the choice is between a job at $8 an hour or a job at $15 an hour. But this assumes the jobs still all exist at $15 an hour. Clearly, many would disappear over time, either as companies automate or as consumers reduce purchases at now higher cost establishments. If the alternative to offering a $8 an hour job is in fact offering no job at all, then minimum wage employers are reducing government benefits payouts.
The Left has pushed eligibility for many programs (e.g. the changes in Obamacare to Medicaid) into higher income bands of people making more than 100% of the poverty line. How is this creeping up of transfer program eligibility somehow the fault of employers?
Does this mean that all right-thinking Americans should oppose any future expansions of transfer programs as crony giveaways? And if you say no, that they should not be thought of crony giveaways in advance of their passage, why should they be considered such afterwards?
The whole point of many of these programs, like the EITC which is listed among the programs in Drum's post, is exactly this -- to provide transition assistance from not working to supporting oneself. The Left's view on this is, as usual, entirely static. What are the folks who are on benefits and working in food service doing 5-10 years from now? Would they look back on that time as a stepping stone to something better?
If you require that all employers pay a salary such that none of its workers are on assistance of any sort, which is the logical conclusion of this meme, then you divide the world into two classes -- those 100% employed and those 100% on benefits, with most people in the latter having little or no prospect of moving to the former.
My company pays minimum wage to the vast majority of our 300+ campground workers. But who is subsidizing whom? Most of these folks are over 60 and on Social Security and find that they need or want more money than their Social Security can provide. One reason for this is that Social Security is a horrible retirement savings program, essentially paying a negative interest rate on the money contributed to the system in the retiree's name. If Social Security were a private retirement plan, its proprietors would be in jail by now. Because Social Security is so lame, older people seek work, and come to me, happy to stay active and earn money to supplement their government checks. So am I subsidizing the SSA's inability to provide a fair return?
Update:This post may be unfair, as discussed here. I am not fully convinced, though.
A few days ago I posted a negative review of Applied Underwriters, and linked to this post on my blog for much more detail. Yelp promptly pulled the review, saying I violated their terms of service by linking to a commercial web site. I thought that bizarre, since my blog has absolutely nothing commercial about it. But it made more sense when I received a letter from Applied Underwriters demanding that I take down my negative Yelp review or they would sue me for libel. I don't know for sure what happened, but I suspect that Applied Underwriters sent Yelp a similar demand and they used the link in the review as an excuse to delete it and avoid legal entanglements.
So I posted an updated review with more detail and no link. Now, Yelp is hiding the review, along with most of the other negative reviews, behind a nearly invisible link at the bottom that says "other reviews that are not currently recommended". Scroll down to the bottom of this page and you may see it if you have a keen eye. It is not even clear it is a link, but if you click on it, you get all the bad reviews Yelp is hiding.
Let's dismiss all the reasons why Yelp might say they do this. One is clarity, to reduce clutter. But go to your favorite restaurant Yelp page. Likely you will not see this link / hidden review phenomenon. You will see pages and pages of reviews, far more than they would have to show if they just displayed all the reviews for Applied Underwriters.
So there must be another reason. They say in their note there is a quality algorithm. Anyone who has read a lot of Yelp reviews will know that if this is so, their quality algorithm is not working very hard. They have a number of reviews that they "recommend" that are nothing more than a rant like "I will never use these guys again" while my unrecommended review includes paragraphs of detail about the service. They say it is based on your review volume as well, but I have more Yelp review volume than several of the others who seem to pass the screen.
All of which leads me to believe that this is Yelp's purgatory where they hide reviews based on corporate pressure. They have gotten a lot of cr*p publicly about deleting bad reviews from sponsors and from corporations that pressure them to do so. They have a zillion self-righteous FAQ's asserting that they don't delete anything. So imagine Applied Underwriters sends Yelp loads of threats to take down each negative review that comes up. What do they do? They put them in the not-recommended purgatory. They can claim that they haven't deleted anything, but absolutely no one will ever likely see the review. And they don't count any longer to the company's review count, so for all intents and purposes they are gone.
All of this is a guess, because it is absolutely impossible to contact Yelp about these issues. No phone numbers. The ones in general directories for San Francisco don't work for them. You can't email or chat or contact their customer support in any way. For a company in the transparency business, they avoid it like the plague.
But do you want to know what makes me doubly sure of my analysis? Because there is no way to up-rate any of the "not recommended" reviews. I would have thought the whole up-rating system was how they sorted reviews to present the most relevent at the top, but you can't do that with the ones they have put in purgatory. Why? Because these reviews are being put in purgatory not for some customer benefit but to protect corporations able to put pressure on Yelp. Yelp doesn't want them uprated. They are supposed to disappear. If I had time, I would compare the number of "not recommended" reviews for corporations with powerful legal staffs like Applied Underwriters to the number for Joe's local business (AU has 17 recommended reviews but a 28 full reviews that have been "disappeared" as unrecommended).
About a week or so ago I wrote a long and detailed post (with frequent updates as I discovered new information) about my extreme dissatisfaction with my workers compensation insurance from Applied Underwriters, a Warren Buffet-owned insurance company. I also wrote a shorter, parallel review on Yelp** (where Applied Underwriters already has an abysmal rating). For reasons I will guess at in the next post, Yelp keeps marking my post as "not recommended" despite the fact that it is one of the few that is not just a rant of the sort "this company sux" but actually has real details. There is a tiny almost invisible link at the bottom to see other reviews not recommended.
Yesterday, I received a letter from Applied Underwriters (Letter here (pdf)) demanding that I take down the Yelp review and my blog post or else they will sue me for libel. Based on my understanding of libel law, the content of my posts (which are all legally protected opinion), and recent court cases, Applied Underwriters has essentially no chance of ever winning such a suit. But my guess is that this is not their intention. I presume they are hoping that the fear of legal action, and the expense of legal defense, will cause me to stop my perfectly valid public criticism of their product.
I am seeking legal advice from a well-known First Amendment attorney, so Applied Underwriters will get my final response after I have had advice of counsel. But here are a few thoughts:
You can read the attorney's letter in full if you are a fan of such things, but if you read sites like Popehat much, you can pretty much predict what you will see.
The gist of their complaint, from the only paragraph of mine quoted in the letter, seems to be the word "scam". By the text of their letter, they seem to believe that "scam" is libelous because their company is well-rated financially and that they provide reasonable claims service. I concede both these facts. However, I called it a "scam" because there is a big undisclosed cost to their product that was never mentioned in the sales process, and that could only be recognized by its omission in the contract I signed -- that there is nothing in the contract committing them to any time-frame under which to return deposits and excess premiums I have paid, which may well amount to hundreds of thousands of dollars. This fact about the contract is confirmed by their customer service staff, who have said further that the typical time-frame to return such over-collections and deposits is 3-7 years after the contract ends, or at least 6-10 years after the first of the deposits was made.
If I had gotten any descriptions of their service terms wrong, I would have been happy to correct them. Hell, given that apparently Applied Underwriters will hold over $200,000 of my money for as many as ten years before they maybe return it to me, I am hoping I somehow have misunderstood. Unfortunately, their staff is pretty adamant that I understand these terms perfectly, and you will see that the letter sent by the attorneys does not attempt to refute any of the specific issues that drive my negative review. And of course none of this was ever disclosed in the sales process. The company attorneys point to the fact that I read the agreement and signed that I understood, but in fact this issue is only in the agreement by its omission. In its 10 pages of arcane boilerplate, the agreement never includes any clause giving them any legal obligation to return your deposits and excess premiums in an defined timeframe. It is that omission that I missed. Would you have caught it? Is this a substantial enough issue that you would expect disclosure in the sales process?
So is this a "scam"? I believe that this issue is costly enough, and hard enough to detect, and far enough outside of expected business practices to be called such. You may have your own opinion, but ask yourself -- When you enter into, say, a lease and have to put down a security deposit, is it your reasonable expectation that the landlord has the right in your lease to keep your deposit for 3-7 years (or more) after you move out? Oh, and by the way, how might your evaluation of something as a "scam" be affected by the knowledge that the company is threatening to sue anyone who writes a negative review?
Anyway, I take responsibility for my own failure as a consumer here. But in a free society it is perfectly reasonable to communicate issues one has with a product or service to help others avoid similar mistakes. Which is what I have done.
** I have problems with Yelp as well. What is linked is not my original review. My original review linked to my blog post. Yelp took it down. I will tell that saga in a future post.
Until now, Nevada has had one of the strongest anti-SLAPP protection laws in the US. As a reminder, SLAPP suits are ones aimed at silencing speech by intimidating it with legal threats and overwhelming it with legal defense costs. Anti-SLAPP laws provide legal protection to speech through a variety of means, including the ability to get quick dismissals of suits whose sole intention is to quash legal speech and in the best cases reimbursement of attorneys fees.
As you can imagine, politicials, the wealthy, and the powerful don't like these suits. Nevada is in the process of gutting these protections. Ken White has the story.
I have a new-found interest in such matters, as I was threatened by a major corporation this week with a libel suit if I did not remove my negative reviews of them on Yelp and on this blog. More on that in the next post.
Mr. Flake, who has spent a decade in a lonely battle against his party to push for easing restrictions on Cuba, is the chief Republican defender of the new Obama policy. White House officials are counting on him to make their case to his party’s rank and file, even as Republican leaders and Cuban-American lawmakers, like Senator Marco Rubio, Republican of Florida, threaten to keep the president from appointing an ambassador or funding an embassy in Havana.
At a Capitol Hill hearing presided over by Mr. Rubio on Tuesday, the two men sat next to each other, somewhat awkwardly, as Mr. Rubio grilled administration officials on a policy he has called a “concession to tyranny.” But even before the hearing, Mr. Flake had moved ahead: Last week he filed a bill to end the decades-old ban on American travel to the Communist island nation.
Good. The Cuba embargo has been a big, obvious, sustained failure. While we have embargoed them they have moved no closer to freedom, while scores of countries with which we actively engage have become more free, in large part due to the effect of engagement by their citizenry with the West.
Flake really is an engaging guy. I watched him at a taping of the NPR game show "Wait, wait, don't tell me" and he charmed an audience of NPR Democrats.
Don Boudreaux loves to try to teach with analogies. Sometimes they work for me, sometimes they don't. I really liked this one. Suppose you were tasked with selling a food product that 100,000,000 people would buy. Anything at all interesting - sushi, a spicy southwestern dish, a nice pork tenderloin - would only appeal to a niche. To get something that appeals to 100,000,000 you have to hit some lowest common denominator.
Eventually, you settle upon something that is unquestionably bland and common and uninspiring – something like a plain hamburger, or perhaps a dish of mild meatloaf with mashed potatoes topped only with butter. Anything more exotic than such offerings will, while being much preferred by a few million of the people whose patronage you’re trying to win, will be rejected by a majority of the people.
The same rules, he argues, apply to Presidential candidates
No one should be surprised that candidates for the U.S. presidency transact mostly in platitudes and are forever performing deeds on the campaign trail that any self-respecting person with independent judgment and a genuine sense and appreciation of his or her uniqueness would never in a million years dream of doing. And the closer a candidate gets to the political promised land, the more intense becomes the pressure for him or her to be the political equivalent of a Bud Lite.
Yes, people write that sort of headline all the time. But in this case, I know. In my novel BMOC, I pondered for quite a while trying to make up outrageously lame torts that ignored the true guilty parties and instead targeted deep pockets only tangentially connected to the harm or loss. But nothing I made up, which I thought to be over the top, beats this one from reality. Via Walter Olson, of course:
Prison inmate orders attack on guard at guard’s home in Bishopville, South Carolina. Surviving guard Robert Johnson and wife “did not, however, sue the typical defendants – i.e., the shooter or any prison inmate or employee. Rather, the Johnsons sued several cellular phone service providers and owners of cell phone towers.
Why? Because they have the most money of anyone involved. Of course, that is not the logic in the legal briefs. Apparently, gasp, the criminals made use of cell phones to plan the crime and for some odd reason the cell phone companies were not monitoring every second of every single call on their networks and failed to prevent the crime.
John Hinderaker had an article titled "THE TIMES GOES KNOW-NOTHING ON IMMIGRATION". In it, he criticizes the New York Times' for being too supportive of open immigration. He proceeds to point out what he believes to be serious negatives of immigration.
I won't go back to my defenses of immigration today. But I did find his article title ironic. Was it purposefully so? I can't imagine that it was. The word "Know-Nothing" is most associated in American History with the Know Nothing party, formerly the Native American party (meaning "native" white folks, not indigenous peoples). As you might guess from the name, their main rallying cry was to limit or stop immigration -- at the time their ire was mainly aimed at the Irish.
This is obviously ironic because from historical use, it is Hinderaker that is going know-nothing, not the Times. And further ironic because the Irish, whom the Know Nothings wanted to keep out, now are considered by most Conservatives to be part of the backbone of America that is being threatened by all these new immigrants. Most of the arguments he uses against immigrants are virtually identical to those used, and since proven incorrect, by the Know Nothings in the 19th century.
Postscript: The term Know-Nothing, if I remember right, came not because they were ignorant, but because they tended to be very secretive. When asked about their party, they would answer that they know nothing (this works best for those who watched Hogan's Heroes and can say this in a sergeant Schultz voice; if you are too young for Hogan's Heroes, then imitating Ygritte in GOT is acceptable).
Yes, hints from the first teaser are confirmed -- there does appear to be a second black guy in the Star Wars universe (third if you count the now decades deceased Mace Windu). Bonus points for the first media outlet that calls this man who lived "a long, long time ago in a galaxy far, far away" an African-American. I always get a laugh when the media refers to a black man in Jamaica or Britain as South Africa as "African American".
Kidding aside, I presume the thing that will have geek nation atwitter is the use of the present rather than past tense when talking about Darth Vader. Not to mention the fact that wookies apparently age much better than humans.
One of the problems with making predictions about bad public policy is that sometimes you have to wait 20-30 years until after the policy was passed to see all the negative consequences play out, by which time people have forgotten about the initial policy changes that caused all the disruption.
But I got to skip those 30 years in San Francisco. I never really paid that much attention to the city until I read a book called "Season of the Witch" written by a progressive about life in San Francisco in the 60's and 70's. As I wrote previously:
What struck me most were the policies these folks on the Progressive Left had on housing. They had three simultaneous policy goals:
Limit San Francisco from building upward (taller). San Francisco is a bit like Manhattan in that the really desirable part where everyone wants to live is pretty small. There was (and I suppose still is) a desire by landowners to build taller buildings, to house more people on the same bit of valuable land. Progressives (along with many others across the political spectrum) were fighting to have the city prevent this increased density as a threat to San Francisco's "character".
Reduce population density in existing buildings. Progressive reformers were seeking to get rid of crazy-crowded rooming houses like those in Chinatown
Control and cap rents. This was the "next thing" that Harvey Milk, for example, was working on just before he was shot -- bringing rent controls to San Francisco.
My first thought was to wonder how a person could hold these three goals in mind without recognizing the inevitable consequences, but I guess it's that cognitive dissonance that keeps socialism alive. But it should not be hard to figure out what the outcome should be of combining: a) some of the most desirable real estate in the country with b) an effective cap on density and thus capacity and c) caps on rents. Rental housing is going to be shifted to privately owned units (coops and condos) and prices of those are going to skyrocket. You are going to end up with real estate only the rich can afford to purchases and a shortage of rental properties at any price. Those people with grandfathered controlled rents will be stuck there, without any mobility.
Since reading the book, I have paid attention to stories on the rental market in San Francisco. In short, it is just as screwed up as would have expected 40 years ago when both density and rent caps were put in place.
As San Francisco's housing crisis continues to pit long-term residents against the recent influx of affluent tech employees, Airbnb and other short-term rentals have become a source of tension. Today San Francisco Mayor Ed Lee and Supervisor Mark Farrell hoped to ease some of that tension by introducing reforms to the city's short-term rental laws that put a 120 day yearly cap on all short-term rentals. The package of amendments also introduced the creation of a new Office of Short-Term Rental Administration and Enforcement for the city staff to "coordinate in the administration and aggressive enforcement of the law."
Airbnb and other short-term rental services have come under fire in San Francisco because they take rental units off an already limited housing market. The current law caps short-term rentals at 90 days when the host is not present. If the host is present -- for example a room rental in an occupied home -- there is no yearly cap. Today's amendment package sets caps for both types of rentals. Mayor Lee said in a statement, "this legislation will help keep our City more affordable for homesharers, preserve rental housing for San Franciscans, protect neighborhood character and streamline permitting and enforcement under a fair set of regulations."
This is from a tech site that has developed a reputation, at least with me, for being astoundingly ignorant of even basic economics, so one has to make some guesses at what is going on here. For example, it seems odd to say that renting a space on a short term lease rather than long-term somehow takes rental units off the market. They are still being rented, are they not? How could one describe them as being taken off the market?
My guess at what is going on here is that short-term rentals are likely exempt from some of the most onerous portions of San Francisco tenant law. Likely, renting short-term allows one to bypass rent controls and charge more. It also likely gives one some relief from the city and the state's horrendous tenant protections that make it virtually impossible to evict a tenant. You lease to someone in SF, and you are stuck with them for life like a shark with a remora on his back, even if that tenant refuses to pay rent for years or constantly trashes the apartment.
San Francisco has created a system where they are absolutely guaranteed to have a shortage of rental properties. Rather than address those laws that create the problem, politicians put their whole effort -- creating brand new agencies, no less -- to stop entrepreneurs from circumventing the madness and trying to provide housing.
Postscript: The war against wealthy tech workers in SF is in full swing. What SF would really like to do, I think, is close its borders and institute immigration controls to keep these folks out. I know there are many parts of the world, including unfortunately our country, that work to keep poor uneducated immigrants seeking opportunity out. But has there ever been a time or place in history where a particular place worked so hard to keep out rich educated immigrants seeking only to spend their money?
Folks often use the abuses in the prostitution industry as evidence of why it should be illegal. But these abuses are actually a result of the illegality. Sex workers in illicit industries cannot use the police and legal system to address abuses without risking arrest. Essentially, they are cut off from access to the legal system and its protections that we take for granted.
People act like the abuses are inherent to the fact that prostitution is a sex work industry, but here is an example of (legal) sex workers protecting themselves and addressing abuses through the legal system, just like all the rest of us do. If prostitution were legal, then prostitutes could do the same.
Three Valley strip clubs are being sued by exotic dancers with the help of a Texas law firm over alleged unpaid tips and wages....
Hodges' firm and the strippers are suing to make the strippers official employees. Their new system would be similar to that of restaurant wait staff, who typically earn a sub-minimum salary (Arizona allows as low as $3 an hour for tipped employees) while pooling tips among their fellow workers. If no customers come in, the staff is still guaranteed to make at least minimum wage, plus time-and-a-half for any overtime worked.
I'm not a big fan of the premise of the lawsuit (trying to force businesses to change their employment model from dancers as independent contractors to dancers as employees) but it is their free access to the legal system that is the point here. One could never imagine such a lawsuit with a group of prostitutes arguing that the people they worked for were not paying them fairly.
I am going to oversimplify, but the essence of bank risk is that they borrow short-term and invest/lend long-term. This is a money-making strategy in that one can often borrow short-term much cheaper than one can borrow long term. This spread between long and short term rates is due to people valuing liquidity. You probably have experienced it yourself when buying a certificate of deposit (CD). The rates for 5 or 10 year CD's are higher, but do you really want to tie your money up for so long? What if rates improve and you find yourself locked into a CD with lower rates? What if you need the money for an emergency? Your concern for having your money locked up is what a preference for liquidity means.
So banks live off this spread. But there are risks, just like you understood there are risks to locking your money in a long-term CD. Imagine the bank is lending for mortgages and AAA corporate customers at 6%. To fund that, they have some shareholder money, which is a long-term investment. But they make the rest up with things like deposits and commercial paper (essentially 90-day or shorter notes). We will leave the Fed out for this. There are two main risks
Short term interest rates rise, such that the spread between their short term borrowing and long-term investments narrows, or even reverses to negative
Worse, the short term money can just disappear. In panics, as we saw in the last financial crisis, the commercial paper market essentially dries up and depositors withdraw their money at the first sign of trouble (this is mitigated for small depositors by deposit insurance but not for large depositors who are not 100% covered).
These risks are made worse when banks or bank-like institutions try to improve the spread they are earning by making riskier investments, thus increasing the spread between their borrowing and investing, but also increasing risk. This is particularly so because these risky investments tend to go south at the same time that short-term credit markets dry up. In fact, the two are closely related.
GE’s news release announcing its latest and greatest reduction of GE Capital summed up the move beautifully, saying “the business model for large wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward.â€
“Wholesale-funded†refers to GE Capital’s traditional reliance on the commercial paper market for liquidity. The problem with this short-term funding model for a balance sheet with long-term assets is that during a financial crisis, overnight liquidity tends to dry up as it did for GE late in 2008. When the company had difficulty finding buyers for its paper, the Federal Deposit Insurance Corp. stepped in and through its Temporary Liquidity Guarantee Program (TLGP) was covering $21.8 billion of GE commercial paper. GE Capital registered for up to $126 billion in commercial-paper guarantees under the TLGP.
If you have a AAA credit rating, you can always, always make money in the good times borrowing short and investing long. You can make even more money borrowing short and investing long and risky. GE made their money in the good times, and then when the model absolutely inevitably fell on its face in the bad times, we taxpayers bailed them out.
Which leads me to think back to Enron. Enron is associated in most people's minds with fraud, and Enron played a lot of funky accounting games to disguise its true financial position from its owners. But at the end of the day, that fraud was not why it failed. Enron failed because it was essentially a bank that was borrowing short and investing long. When the liquidity crisis arrived and they couldn't borrow short any more, they went bankrupt. Jeff Skilling didn't actually go to jail for accounting fraud, he went to jail for making potentially inaccurate positive statements to shareholders to try to head off the crisis of confidence (and the resulting liquidity crisis). Something every CEO in history has done in a liquidity crisis (back in 2008 I wrote an article comparing Bear Stearns crash and the actions of its CEO to Enron's; two days later the Economist went into great depth on the same topic).
So the difference between GE and Enron? The government bailed out GE by guaranteeing its commercial paper (thus solving its problem of access to short term funding) and did nothing for Enron. Obviously the time and place and government officials involved differed, but I would also offer up two differences:
Few really understood what mad genius Jeff Skilling was doing at Enron (I can call him that because I actually worked with him briefly at McKinsey, which you can also take as a disclosure). With Enron so opaque to outsiders, for which a lot of the blame has to be put on Enron managers for making it that way, it was far easier to ascribe its problems to fraud rather than the liquidity crisis that was well-understood at Bear or Lehman or GE.
Enron failed to convince the world it posed systematic risk, which in hindsight it did not. GE and other big banks survived 2008 and got bailed out because they convinced the government they would take everyone down with them. They followed the strategy of the Joker in The Dark Knight, who revealed to a hostile room a coat full of grenades with this finger ready to pull the pins if they didn't let him out alive.
Artist's rendering of 2008 business strategy of GE Capital, Citicorp, Bank of America, Goldman Sachs, GMAC, etc.
Postscript: For those not clicking through, I though this bit from the 2008 Economist article was pretty thought-provoking:
For many people, the mere fact of Enron's collapse is evidence that Mr Skilling and his old mentor and boss, Ken Lay, who died between hisconviction and sentencing, presided over a fraudulent house of cards. Yet Mr Skilling has always argued that Enron's collapse largely resulted from a loss of trust in the firm by its financial-market counterparties, who engaged in the equivalent of a bank run. Certainly, the amounts of money involved in the specific frauds identified at Enron were small compared to the amount of shareholder value that was ultimately destroyed when it plunged into bankruptcy.
Yet recent events in the financial markets add some weight to Mr Skilling's story"â€though nobody is (yet) alleging the sort of fraudulentbehaviour on Wall Street that apparently took place at Enron. The hastily arranged purchase of Bear Stearns by JP Morgan Chase is the result of exactly such a bank run on the bank, as Bear's counterparties lost faith in it. This has seen the destruction of most of its roughly $20-billion market capitalisation since January 2007. By comparison, $65 billion was wiped out at Enron, and $190 billion at Citigroup since May 2007, as the credit crunch turned into a crisis in capitalism.
Mr Skilling's defence team unearthed another apparent inconsistency in Mr Fastow's testimony that resonates with today's events. As Enronentered its death spiral, Mr Lay held a meeting to reassure employees that the firm was still in good shape, and that its "liquidity was strong". The composite suggested that Mr Fastow "felt [Mr Lay's comment] was an overstatement" stemming from Mr Lay's need to "increase public confidence" in the firm.
The original FBI notes say that Mr Fastow thought the comment "fair". The jury found Mr Lay guilty of fraud at least partly because it believed the government's allegations that Mr Lay knew such bullish statements were false when he made them.
As recently as March 12th, Alan Schwartz, the chief executive of Bear Stearns, issued a statement responding to rumours that it was introuble, saying that "we don't see any pressure on our liquidity, let alone a liquidity crisis." Two days later, only an emergency credit line arranged by the Federal Reserve was keeping the investment bank alive. (Meanwhile, as its share price tumbled on rumours of trouble onMarch 17th, Lehman Brothers issued a statement confirming that its "liquidity is very strong.")
Although it can do nothing for Mr Lay, the fate of Bear Stearns illustrates how fast quickly a firm's prospects can go from promising to non-existent when counterparties lose confidence in it. The rapid loss of market value so soon after a bullish comment from a chief executive may, judging by one reading of Enron's experience, get prosecutorial juices going, should the financial crisis get so bad that the public demands locking up some prominent Wall Streeters.
Our securities laws are written to protect shareholders and rightly take a dim view of CEO's make false statements about the condition of a company. But if you owned stock in a company facing such a crisis, what would you want your CEO saying? "Everything is fine, nothing to see here" or "We're toast, call Blackstone to pick up the carcass"?
In the late 1970's, I guess it was OK to mock Islam because Gary Trudeau sure did it a lot in his Doonebury comic. I remember one panel where the Iranian Chief Justice was in the states for his college reunion, telling his old school mates he stayed in such great shape by "flogging" rather than jogging.
Today, though, the Left seems to feel that Islam is off-limits and even needs their protection. It's OK to mock Indiana for not forcing every photographer to work gay weddings but God forbid anyone mock countries that kill gays just for being gay. In Trudeau we have an icon of the 1960's radicals advocating for limits on free speech and for blasphemy laws. Too bizarre for words. Eugene Volokh has a good commentary on Trudeau's remarks.
Look, sometimes commentators like myself adopt a sort of feaux confusion on the actions of folks we disagree with. But I am being honest here -- I really, really don't understand this.
I will say that I think this position tends to support a pet theory of mine. Remember that I start with a belief that American Republicans and Democrats are not internally consistent on their politics, and not even consistent over time (e.g. Republicans opposed wars of choices in Kosovo under Clinton, supported them under Bush in Iraq, and then opposed them again under Obama in Libya).
So here is my theory to explain many party political positions: Consider an issue where one party is really passionate about something. The other party might tend to initially agree. But over time there is going to be pressure for the other party to take the opposite stand, whether it is consistent with some sort of party ideological framework or not. After 9/11, the Republicans staked out a position that they thought that Islam as practiced in several countries was evil and dangerous and in some cases needed to be subdued by force of arms. In my framework, this pushed Democrats into becoming defenders of modern Islam, even at the same time that domestic politics was pushing them to be critical of Christian religion as it affected social policy (i.e. abortion and later gay marriage). Apparently, the more obvious position of "yeah, we agree much of the Islamic world is illiberal and violent, but we don't think we can or should fix it by arms" is too subtle a position to win elections. I fear we have gotten to a point where if either party is for something, they have to be in favor of mandating it, and if they are against something, they have to be in favor of using the full force of government to purge it from this Earth. And the other party will default to the opposite position.
The counter-veiling argument to this is two words: "drug war". This seems to be a bipartisan disaster that is generally supported by both parties. So my framework needs some work.
This one is priceless, and I have been remiss in not posting it. Reminded most recently by the link at Maggie's Farm. Excerpt, but the whole thing is great:
"Here's the problem. Most hedge funds are indistinguishable from mutual funds, other than the fact that they feel entitled to charge 30 times the fees."
"Two percent of assets for showing up in the morning, and 20% of any profits."
"There are probably 100 hedge funds that will consistently beat the market after fees. They won't take your money. They provide just enough hope for investors to keep the rest of us in business. We earn half the performance of index funds, charge 30 times the fees of mutual funds, pay half the income tax rates of school teachers, have triple the ego of rock stars, and fewer disclosure requirements than the NSA."
"We're basically a conduit between public pension funds and Greenwich real estate agents."
MaCurdy found that less than 40% of wage increases [from a minimum wage hike] went to people earning less than twice the poverty line, and among that group, about third of them are trying to raise a family on the minimum wage. In other words, something like 1 in 8 people who do receive the minimum wage (and ignoring any potential adverse effects of it), are actually in what you might call the “targeted” group. 7 out of 8 people who receive minimum wage increases fall outside the targeted group.
When I first offered my novel BMOC to readers, a lot of them assumed it was some libertarianish fantasy. Actually, its not a particularly serious book, just your normal everyday mystery for reading at the beach. The unique part of the book is the introduction of a number of oddball business models (I used to make these up as my occupation to share with people at cocktail parties when I got bored).
I am in the midst of a light edit of the book for a re-release (like my last story, we will have a limited time free-on-Kindle promotion, so watch for that). Anyway, I had forgotten this idea I had included for a reality TV show. I think it holds up pretty well.
Gladstone knew that most of Cupcake’s best-known work was in a reality TV show called “Seven Deadly Sins.” In that particular show, eight priests were brought together, tempted each week by one of the seven deadly sins. The viewing audience got to vote each week as to which priest succumbed the most and got kicked off the show. Cupcake was featured prominently in several of the weekly contests, including her now famous take-down of Father Stanley Vincenzo (who had up to that point been considered the shoe-in favorite to emerge victorious) in the “lust” episode.
It is amazing no sharp TV executive has yet snapped this idea up. You are all welcome to it, go and make your fortune.
After dissing the Food Babe in the last post, I guess I need to recover some karma. The whole gluten-free thing has been justly skewered (e.g. here) because the vast majority of people who want to live gluten-free have no biological justification for doing so. That being said, there are people who are legitimately gluten-intolerant, like my mother-in-law.
When she visited, I knew nothing about gluten-free stuff. But I bought this home-made gluten-free donut mix and a donut baking pan from Amazon based on the reviews. Well, screw the gluten-free part, these things were awesome. And really easy to make. No vats of oil, they are just baked. Recommended even for us wheat-eaters.
I didn't have any idea who the "Food Babe" was but from this article she sure seems to be yet another example. If you want to see an absolute classic of food babe "thinking", check out this article on flying. Seriously, I seldom insist you go read something but it is relatively short and you will find yourself laughing, I guarantee it.
Postscript: I had someone tell me the other day that I was inconsistent. I was on the side of science (being pro-vaccination) but against science (being pro-fossil fuel use). I have heard this or something like it come up in the vaccination debate a number of times, so a few thoughts:
The commenter is assuming their conclusion. Most people don't actually look at the science, so saying you are for or against science is their way of saying you are right or wrong.
The Luddites are indeed taking a consistent position here, and both "Food babe" and RFK Jr. represent that position -- they ascribe large, unproveable risks to mundane manmade items and totally discount the benefits of these items. This includes vaccines, fossil fuels, GMO foods, cell phones, etc.
I am actually with the science on global warming, it is just what the science says is not well-portrayed in the media. The famous 97% of scientists actually agreed with two propositions: That the world has warmed over the last century and that man has contributed to that warming. The science is pretty clear on these propositions and I agree with them. What I disagree with is that temperature sensitivity to a doubling of CO2 concentrations is catastrophic, on the order of 4 or 5C or higher, as many alarmist believe, driven by absurdly high assumptions of positive feedback in the climate system. But the science is very much in dispute about these feedback assumptions and thus on the amount of warming we should expect in the future -- in fact the estimates in scientific papers and the IPCC keep declining each year heading steadily for my position of 1.5C. Also, I dispute that things like recent hurricanes and the California drought can be tied to manmade CO2, and in fact the NOAA and many others have denied that these can be linked. In being skeptical of all these crazy links to global warming (e.g. Obama claims global warming caused his daughter's asthma attack), I am totally with science. Scientists are not linking these things, talking heads in the media are.
My absolute favorite example of corporations using social causes as cover for cost-cutting is in hotels. You have probably seen it -- the little cards in the bathroom that say that you can help save the world by reusing your towels. This is freaking brilliant marketing. It looks all environmental and stuff, but in fact they are just asking your permission to save money by not doing laundry.
Men negotiate harder than women do and sometimes women get penalized when they do negotiate,’ she said. ‘So as part of our recruiting process we don’t negotiate with candidates. We come up with an offer that we think is fair. If you want more equity, we’ll let you swap a little bit of your cash salary for equity, but we aren’t going to reward people who are better negotiators with more compensation.’
Like the towels in hotels are not washed to save the world, this is marketed as fairness to women, but note in fact that women don't actually get anything. What the company gets is an excuse to make their salaries take-it-or-leave-it offers and helps the company draw the line against expensive negotiation that might increase their payroll costs.
Postscript: Yes, I understand the theory of negotiation and price discrimination, as used by auto dealers. One can make an argument that setting prices high (or wages low) and then allowing negotiation by the most wage or price sensitive is the best way to optimize profits, and that Pao's plan in the long-term may actually raise their total compensation costs for the same quality people. I don't think she is thinking that far ahead.
Remember my hypothesis that in common use, at least on campus, the word "diversity" does not actually refer to ending out-groups, but is just is a code word for shifting the out-group tag from one set of people to another?
Here is a great example. And more here, from a man in an interracial marriage who was labelled a white supremacist by Entertainment Weekly.
Moderates, libertarians, and Conservatives on campus would have done well to have fought back like this 20 years ago.
Update:I love Sarah Hoyt. "We haven’t yet reached the point when “banned by the New York Publishing establishment” is a badge of honor, but unless I mistake my gut we’re not very far off."
Update 2/1/2016: I will not comment further at the moment on Applied Underwriters as they are currently suing me to have this article below removed. So you will need to look elsewhere for news on AU, of which there appears to be plenty. For example, here and here. The State of California Insurance Commission, via an Administrative Law Judge's decision, has ruled on the legality of the AU product discussed below. That ruling (pdf) can be downloaded here. I would love to comment on it but I will have to leave the evaluation to you. If you can't read the whole thing pages 33 and 34 are worth your time, as well as the conclusions that begin on page 59.
Well, I have managed to get myself into a scam. It is not your normal scam, like the ones that are run by some mafia boiler room with guys working under aliases. This scam comes via a major insurance company called Applied Underwriters (working under the names California Insurance Company and Continental Indemnity Company) which is owned by Berkshire Hathaway and none other than Warren Buffett. If you feel sorry for Warren Buffett and want to give him a large interest-free loan for an indeterminate number of years, this is your program.
Update 4/16: Let me insert here that Applied Underwriters has sent me a letter threatening a libel suit if I do not take down this post and a parallel review at Yelp. AU Takedown demand here (pdf). The gist of the matter seems to be the word "scam". By the text of their letter, they seem to believe that "scam" is libelous because their company is well-rated financially and that they provide reasonable claims service. I concede both these facts. However, I called it a "scam" because there is a big undisclosed cost to their product that was never mentioned in the sales process, and that could only be recognized by its omission in the contract I signed -- that there is nothing in the contract committing them to any time-frame under which to return deposits and excess premiums I have paid, which may well amount to hundreds of thousands of dollars. This fact about the contract is confirmed by their customer service staff, who have said further that the typical time-frame to return such over-collections and deposits is 3-7 years after the contract ends, or at least 6-10 years after the first of the deposits was made.
So is this a "scam"? I believe that this issue is costly enough, and hard enough to detect, and far enough outside of expected business practices to be called such. You may have your own opinion, but ask yourself -- When you enter into, say, a lease and have to put down a security deposit, is it your reasonable expectation that the landlord has the right in your lease to keep your deposit for 3-7 years (or more) after you move out? /Update
Anyway, let's take a step back and look at this in detail.
First, I need to give a bit of background on how workers comp works. When you are a new company, they assign you an experience rating -- that is a multiplier of your premium based on past loss experience. There is some default starting number that if I remember right, in most states, is a bit over 1.0x. Each year, the workers comp world looks back at your past history and computes a new loss rating -- higher if you have had more payouts, lower if not. Generally it is based on three years experience not counting the last year (so 2-4 years in the past). Your future premiums get multiplied by this loss rating.
Several years ago we had a couple bad injuries that drove our loss number into the 1.7-1.9x area. Neither were really due to a bad safety issue, but both involved workers in their seventies where a minor initial injury led to all sorts of complications. Anyway, my agent at the time calls me one day a couple of weeks before renewal and says that none of the major companies will renew me. This seemed odd to me -- I understood that my recent claims history was not good, but isn't that what the premium multiplier was for? In fact, if my loss history returned to normal, they would make a fortune as I paid high rates based on old losses but had fewer new ones.
Apparently, though, insurance companies have fixed rules that keep them from underwriting higher loss ratings. Probably for the same reason Vegas won't take action on Ivy League football games any more -- just too much variability. I found out later with my new broker we could probably have overcome this, but I learned that too late.
My broker at the time put me into a 3-year program from Applied Underwriters, in part because they were taking everybody. This program was set up differently from most workers comp programs. You had a basic policy, but there was a second (almost indecipherable to laymen) reinsurance agreement that adjusted the rates of the basic policy based on you actual claims. Here is the agreement (pdf) In other words, based on your claims, they would figure up at the end how much you owed and what your premium multiplier would be.
I saw two red flags that I ignored in signing up. 1) The reinsurance agreement was impossible to understand, violating one of my foundational rules that I shouldn't sign things I don't understand. And 2) The rate structure was very suspicious. They touted a rate structure that could go as low as, say, $100,000 a year and was capped around $400,000 a year. But when you pulled out a calculator, the $100,000 was virtually unobtainable. It would require about zero claims. If there were any claims at all, even for a few bandaids, the price would march up to $400,000 really fast. It was the equivalent of a credit card teaser rate, and it should have made me suspicious.
Anyway, I was desperate. For a business like mine, being told I had no workers comp insurance just a few weeks before the old policy ran out was a death sentence. No one would write me or even quote me a policy that fast. So I took the Applied Underwriters offer. Shame on me, I should have worked on this much harder.
I won't bore you further with my voyage of discovery in trying to figure out how this thing works. I will just tell you the results that I have found. There are apparently other companies with similar issues, one of which is documented here: Applied Underwriter Suit (pdf)Newsletter publisher objected to scan of article, so I have taken it down at their request. Here is a link to roughly the same article.
I spent hours and hours trying to figure out AU's statements. There is a whole set of terminology to learn that is actually not used in most of the rest of the workers comp world. The key page of the statement is page 7, which I will show below because it highlights several of the issues with Applied. Page 7 is the page where the monthly premium is "calculated". I have added the red numbers and arrows for the discussion below.
Here are some of the Applied Underwriter problems:
Large deposits that must be made each year and may never be returned. You can see that I am making deposits over $40,000 a year. And that is each year. The first year deposit is not returned. The second year and third year are just added to it. And I have found out since I joined this program that they are not contractually obligated to return them in any time frame. Maybe some guy who was hurt in his thirties has a relapse and claims more money when he is 75. Gotta keep your deposit just in case, don't we? The timing of the return of your deposits (and overpaid premiums below) is entirely at their discretion, and that has been confirmed by their customer service staff. In fact, their standard answer is that on average, such monies are not returned to customers for 3-7 years after the contract ends, or at least 6-10 years after the first deposits were made.
Premiums based on the worst of your experience and their estimate of your losses, and they keep the difference for years and years. For those in the same trap as me, I will try to explain the numbers above. The estimated loss pick containment at the top is basically their estimate of your losses. Note that it drives every number on the page and is basically their arbitrary number -- they could have set it anywhere. The loss pick containment to date is just pro rated for the amount of the year that has gone by. The 65% is an arbitrary number. The $25,278 is my actual losses to date. You can see where I point with #2 above, though, that my losses are irrelevant to my premiums. They take the higher of my losses and what is essentially their estimate of my losses and I pay based on that. Note that their higher number is not based on the reserved amounts on actual claims -- the $25,278 includes their reserves. It is just the number they established at the beginning of my policy they think my claims are going to be and gosh darnit they are going to stick to that (and my claims even in my worst year in history were never even half of their estimate). Yes, at the end of the policy if my losses stay low, they owe me money back for all the premium they overcharged me based on their arbitrarily high estimates. But see #1 above -- there is no time horizon under which they have to return the money. They can keep it for years and years.
The final premium is, after all these calculations, entirely arbitrary. So after this loss calculation (which essentially just defaults to their arbitrarily high estimate and not my actual loss history) they do some premium calculations. These actually sort of make sense if you stare at the agreements for a really long time. But then we get to the line I point to in red labelled 3. It is the actual amount I owe. But it does not foot to any other number on the page. How do they come up with this? They won't say. To anyone. It might as well be arbitrary. I actually had some dead time and took all my reports and tried to regress to a formula they use for this, but I couldn't figure it out. So all the calculation on this page is just a sham, it's the mechanical wizard in the Wizard of Oz. It looks good, but does not actually directly lead to what you are billed.
So I thought I understood my problems. I put in large deposits and overpaid premiums based on arbitrarily high loss estimates they make -- all of which will take me years and years of effort to maybe get back. It turns out that I likely will have a third problem. In the lawsuit linked above, the plaintiff complains that when they left the program after three years, Applied arbitrarily wrote up all their estimated losses on open claims to stratospheric levels and then demanded a large final premium payment at the end. Folks on Yelp complain of the same thing. You should know how this works by now -- the plaintiff will theoretically get all this back someday, maybe, when the claims prove to be less costly, but in the mean time Warren Buffet gets to invest the money for years and years (cost of capital = 0) until it is returned.
This is why I think Applied Underwriters actually likes companies with high lost histories. Rather than costs, losses for them are excuses to over-collect on deposits and premiums -- money that can then be invested and held for years free of charge.
As an aside, I want to thank my new agents at Interwest Insurance for helping decipher all of this. They actually flew a guy in to help me understand this policy. They didn't get me into it, but they are helping me pick up the pieces as best we can.
I love the convenience of having my photos online and share-able, and especially having them backed up automatically as I take them, but the problem is that all the major sites seem to have a dream of being the last internet site standing, and want to keep all your photos in their little universe. Shutterfly, Facebook, Google, Flickr -- they tend to only allow sharing within their little universe (though I am hoping for good things from Google peeling photos out of Google Plus).
Basically, sending your photos to these sites is a bit like sending someone to North Korea - they go in but never come out. Someone just shared a shutterfly album with me and God forbid you want to actually save some of the full-resolution images rather than just buy prints from them. At best these sites have some kludgy way to download full resolution photos one at a time, but it is never, ever easy and none have, as far as I have been able to see, a batch download function. Flickr is the best in several ways due to its API that lets me automatically share albums and photos pretty easily in WordPress, but its core interface is now so ugly with the revamp a few years ago that I can barely stand to open it (and they tend to change names for the same damn thing - set, album, collection, etc - depending on which menu or context you find it).
I finally saw the movie American Sniper, and I am amazed anyone could think this movie glorified war or America's involvement in Iraq. As a pacifist, I am extremely sensitive to movies that seem too rah-rah about war, but this was not one of them. The protagonist may come off as heroic, or at least enduring, but war looks pretty sucky, full of hideous moral choices, and led/governed by jerks. Which shouldn't be surprising because I would have described Eastwood's other recent war movies in roughly the same way.
