Category Archives: Econ & Money

They're calling it 'murder by spreadsheet' — CIGNA refused for 20 days to OK a liver transplant for Natalee Sarkisian, a teenager who died today, ironically only shortly after demonstrators and a tidal wave of bad publicity forced CIGNA to reverse its negative decision.

The 20-day delay, during which the family had to decline at least one suitable transplant opportunity due to lack of funds, is said by the family to be the proximate cause of death — although this was a very complex medical case.

We need national health insurance. (Not insurance companies for everyone.)

David Byrne, yes that David Byrne, one of my favorite contemporary musicians, explains the mortgage credit crisis and how the housing bubble might explain why working people voted against their interests in 2004 and helped elect GW Bush,

Meanwhile the recipients — the workingmen and women who are barely eking by — suddenly have loan offers thrown at them by the truckload. They feel richer, more flush; things are going well it seems, and their situations improving. It’s not so hard to pay the bills. They worry less and sleep more. A sense of blissfully ignorant well-being pervades the land. The working class and the under- and unemployed assume that the Republicans are somewhat responsible for this new (virtual) wealth — and maybe they were. It would follow that Mr. Joe Average might vote for the administration seemingly responsible for his new sense of well-being. Now, the bills are coming due — the housing market stalled, as I understand it, triggering the collapse of the whole house of cards.

Although Byrne's analysis of the sources of the bubble isn't half bad, the really good stuff is at Calculated Risk if you have a taste for true insider mortgage industry wonkishness in all its glory. But having seen Bryne's blog entry, I couldn't, just couldn't, resist the chance to use that headline.

I'd like to dissent from the view expressed at Concurring Opinions's A PayPal Christmas. Prof. Waldeck suggests that we'd all be better off if we used PayPal because “PayPal and other payment providers are intermediaries that can make both consumers and merchants better off” — primarily because “PayPal and similar services charge merchants lower processing fees and offer other advantages, such as not requiring retailers to reimburse them for fraudulent purchases.”

But in fact most consumers won't see the advantages — quite the contrary.

First, consider how Paypal gets its money from you. Unless you are a seller who puts money into Paypal from other consumers, odds are that you fund your Paypal account the way I do: with a linked credit card. It may be that Paypal gets charged a lower fee than a merchant account, but it can't be that much lower because it is still a “card not present” transaction, and those tend to be on the high end.

No, the real 'savings' to merchants is that by inserting Paypal into the payment chain, consumers waive their rights to cancel transactions if the good is not delivered or the service is performed improperly. That's because the credit card payment agreement is with Paypal, and it's not Paypal that has failed to perform. It's done exactly like you asked it, by sending money on to the merchant. And now the merchant is just a third party from the point of view of the credit card.

So, my advice is that if you are buying anything at all expensive, use your credit card. (Unless you are carrying a balance – in which case you want to pay that off first before you buy anything, even with Paypal!) Don't use your debit card, and certainly not a payment intermediary unless you trust that intermediary to have as generous chargeback terms as the credit cards.

It's certainly true that credit cards take a big bite out of merchants and that ultimately these charges are passed on to consumers. But unlike debit cards, credit cards give you a small float, even if you pay your bill in full every month (which you absolutely should). More importantly, they are in effect insuring the transaction. That's valuable now and especially valuable if you are buying something online, sight unseen, and trusting in delivery.

It may be that pressure from the paypals of the world will in time — lots of time — get credit card companies to cut their fees. But at best this is an N-person prisoner dilemma game; at worst it's a category mis-match because the service you are switching to is one that is significantly inferior to the one you are switching from. Paypal does have a “buyer protection policy” but this isn't mandated by law, and it is very significantly more limited than what your credit card will give you.

But don't take my word for it. Visit some of the Paypal fan sites, like PayPalsucks.com.

(Note: There are also “warning” sites aimed at merchants, e.g. About Paypal.org and Paypalwarning.com, but it's hard to tell if these are for real or just astroturf for a would-be competitor.)

One of my all-time favorite books about Wall Street is Fred Schwed, Where Are the Customers' Yachts? or A Good Hard Look at Wall Street (1940).

It begins with the wonderful old tale of the visitor to New York who admired the yachts that the bankers and brokers had in the harbor. Naively, he then asked where the customers' yachts were. Naturally, there were no customers' yachts.

I'm reminded of this story by today's bit of front-page boosterism in the New York Times. Goldman Sachs Rakes in Profit in Credit Crisis is all about how the boffins at Goldman were smart about the mortgate crisis, and got out of the dangerous securities a year ago, or if they didn't then insured them like crazy. So they're coining it this year, while competitors are hemorrhaging.

But in a classic case of totally missing the real story, we find the following down in paragraph nine:

Even Goldman, which saw the problems coming, continued to package risky mortgages to sell to investors. Some of those investors took losses on those securities, while Goldman’s hedges were profitable.

Goldman hedged, but its customers didn't. Were the investors so sophisticated that they have only themselves to blame? Were they properly advised, and ignored the advice? Or has nothing changed since the Roaring 20s?

Well, one thing has changed: We re-wrote the securities laws. And if I were a Goldman customer who had been sold radioactive sludge as a security in the past few months without a very stern warning about the unusual risk, risk so great the G-S itself wouldn't hold the securities without insurance, I'd be calling my lawyer about now to find out what my options were.

Here's a simple explanation of why Hollwood's writers are on strike.

It's effective. Who is going to write the studios' reply?

This is one of the finest explanations I've ever seen of the sub-prime crisis, and of market volatility in general:

This really is excellent. Very highly recommended even if you are not an investor.

(spotted via Calculated Risk)