May 03

Apr 23

Today’s massive market plunge, in full perspective

After the AP’s Twitter account was hacked today, we saw a lot of scary charts on how much the market moved. Here’s the view of today’s stock market volatility that you’ve probably seen:

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Pay attention to the y-axis though — it’s absurdly cropped. As it is here and many other places, or herehere, and here if you’re interested in the Dow.  Sure, the market recovered in a few minutes, but that’s a scary looking chart.

Reuters Stephen Culp pulled together a different view. The y-axis goes all the way to zero, as it should:

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Unlike the first example, on this chart the market drop has to be highlighted so it isn’t obscured by a speck of dust on your monitor. Much more soothing, isn’t it? – Ben Walsh

Apr 01

"Rebuilding revenue streams [in Stockton] in the short-term is nearly impossible. The City exhauseted all reserves long ago. Without voter approval, state law forbids the General Fund from borrowing money from other funds or from private creditors unless the City can repay the advances from revenues raised in the same fiscal year. The City cannot do so. Raising taxes also is illegal without voter approval. And voter approval of new debt or new taxes is highly unlikely in a city with 20% unemployment, a high rate of foreclosures, a high level of poverty, and widespread distrust of the City’s past fiscal practices.

Because raising revenues has not been a realistic tool for solving its chronic budget deficits, the City has resorted to increasingly drastic cost-cutting measures. It balanced its fiscal year 2009-10 and 2010-11 budgets largely by reducing services and employee compensation and benefits. These actions were necessary, but came with a cost. Stockton has the highest crime rate for a large city in California, but has 22% fewer police officers on the streets than it did four years ago. Violent crime, murders, gang activity, and drug trafficking are on the rise. Fire protection, building, vehicle, road, and tree maintenance, and community programs have also been slashed.

” — Stockton’s bankruptcy brief (PDF)

“In Stockton, California, public safety workers earn on average 126 percent of the maximum salary and at least 200 percent of the minimum wage for their respective wage categories.” — Cate Long on how runaway pay for police officers and firefighters contributed to Stockton’s insolvency

U.S. Bankruptcy Court Judge Christopher Klein’s ruling permits Stockton to proceed with its Chapter 9 bankruptcy protection filing from last June in a case with precedent-setting potential for other cash-strapped U.S. cities.

In a lengthy preamble to his ruling, Klein said Stockton’s bondholders had failed to negotiate in good faith with the city prior to its filing for protection. He added the city was “by any measure insolvent” prior to its filing.

” — Reuters: Stockton eligible for bankruptcy protection

“The idea that American manufacturing is on the cusp of a renaissance is everywhere these days—except in the hard numbers. It’s true that industrial production has grown twice as fast as the economy as a whole in this recovery, and manufacturers are adding jobs again. But economists see those gains as too small relative to what was lost in previous years to suggest a full-blown revival… “There’s simply no statistical evidence of a broader renaissance at this point,” says Daniel Meckstroth, chief economist with the Manufacturers Alliance for Productivity and Innovation, an Arlington, Va., group that represents mostly large U.S. producers.” — The WSJ’s Timothy Aeppel examines whether or not the return of US manufacturing is a real phenomenon. He largely concludes not.

Tim Taylor on the remarkable persistence of US economic growth, 1790-present. 

Tim Taylor on the remarkable persistence of US economic growth, 1790-present. 

Mar 29

The CFPB proves it takes agency to complain

The Consumer Financial Protection Bureau has released its database of complaints against credit card companies, and “well-to-do neighborhoods of Florida and New York that are supplying the most grievances”:

Of the top four zip codes contributing to the 18,539 complaints published as of March 18, two are on Manhattan’s Upper West Side and two in south Florida — Boca Raton and Palm Beach Gardens. Almost 60 percent of complaints originated in zip codes where the median household income is higher than the national median of $52,762, according to the analysis.

This is amusing, but also instructive. To end up in the CFPB’s credit card complaint database, you must fit a fairly narrow set of criteria, from having a credit card, to knowing when you’ve been had, to caolling yur credit card company, all the way to knowing the CFPB exists and how to register your complaint. And of course, a certain sense of justified indignation.

Each one of these steps requires a specific level of financial understanding, bureaucratic knowledge, social literacy, and disposable time. And, of course, you have to belive that your grievances can be righted through bureaucratic channels, and that public institutions are responsive and responsible. All of which requires a very specific type of personal agency, and explains why complaining about your credit card company is actually rare behavior. — Ben Walsh

Mar 28

The cost of Warren Buffett’s imprimatur

Stephen Gandel has a smart post on the Buffett-Goldman deal. Instead of looking at it from Buffett’s perspective, as I did yesterday, he looks at it from Goldman’s perspective. His conclusion is that in the fall of 2008, Goldman “may have been in more trouble than is understood”. It needed Buffett’s investment far more than he needed to make it, and he got very favorable terms:

Almost all of the gain Buffett got on his Goldman investment comes from the special structure of the investment — the preferreds and the warrants. As a straight stock pick, Goldman hasn’t been all that remarkable since Buffett put his money in…

So how much trouble was Goldman in at the height of the financial crisis: $2.4 billion worth. That’s how much extra the bank paid Buffett above what he would have earned if he had just bought the shares on the open market… 

Gandel is spot-on in identifying the perpetual preferreds as the key to the profitability of the investment, and Buffett’s ability to charge a hefty premium for his imprimatur. — Ben Walsh

Regulatory filing of the week: A123 becomes B456

A123 Systems, a struggling lithium ion battery manufacturer, has filed an 8-K with the SEC to legally change its name to B456.

Here’s the full document